Oil prices driving Shell-BG merger
15 Apr 2015
Shell’s proposed £47 billion takeover of BG Group could be the first of many oil & gas mergers and acquisitions, say analysts, with last week’s announcement of the deal sending up the share prices of other companies.
The key driver, said ARC senior analyst Tim Shea, was the continuing low price of oil.
“ARC has been opining that one of the impacts of falling oil prices would be an increase in mergers and acquisition activity and/or an increasing number of partnerships or joint ventures,” said Shea.
The (Shell-BG) merger consolidates the UK’s largest and third largest gas companies into one
ARC analyst Tim Shea
“The (Shell-BG) merger, the largest this year, consolidates the UK’s largest and third largest gas companies into one; with a market capitalisation of $246 billion.”
Shea added that the deal was expected to eliminate overlapping costs and help safeguard the companies against declining commodity prices. Shell would also break into Australia and countries in east Africa, Latin America, and central Asia.
“The merger would help to stabilise both companies, especially BG, who would benefit from having the support of a stronger partner,” said Shea.
“While Shell was able to operate, pay dividends and maintain capital at a price of $75 per barrel of crude, BG found it more difficult. The deal is now expected to generate pre-tax synergies of around £2.5 billion.”
