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Shell in talks to buy UK gas producer BG Group Shell in talks to buy UK gas producer BG Group
(about 2 hours later)
The UK gas producer BG Group has said it is in talks to sell itself to Royal Dutch Shell. Oil giant Royal Dutch Shell is in talks to buy gas group BG in a multibillion-pound deal that would be one of the biggest oil and gas sector deals in the last 20 years.
BG confirmed on Tuesday night that it was in negotiations with its rival. Shell is likely to have to pay around $46bn (£31bn) to gain control.
In a statement the company said: “The board of BG Group confirms that it is in advanced discussions with Royal Dutch Shell regarding a possible offer by Shell for BG.” The statement added that there was no certainty a deal would be reached, but said “a further announcement will be made shortly”.
The transaction would be the biggest this year and the fourth largest oil and gas deal globally since 1996.The transaction would be the biggest this year and the fourth largest oil and gas deal globally since 1996.
At the close of business on Tuesday, BG Group had a market capitalisation of about £31bn. BG’s net debt is about £8bn. When the stockmarket closed on Tuesday, BG group – which has 5,200 employees and was once part of the nationalised British Gas business – was valued at some £31bn. It also has debt of around £8bn.
The deal was first reported by the Wall Street Journal, citing sources familiar with the matter. Like other companies operating in the oil and gas business, BG has been hit hard in recent months by falling prices. A glut of oil has seen the price fall nearly 50%, to around $59, since last summer.
BG Group said on Tuesday that there was no certainty that Shell would make any offer. Shell declined to comment. The company’s profits were down nearly 20%, to just over $900m, in the three months to the end of last year.
BG has been plagued by problems in the past few months, including dwindling gas reserves in Egypt, while the decline in oil prices has further lowered the value of some of its assets. It took a £6bn writedown recently. Shell’s stockmarket value is around £135bn, and many City analysts had been expecting the firm to mount a takeover.
That forced the company to rush in the former Statoil CEO Helge Lund as chief executive in February, nearly a month ahead of schedule. The vast Anglo-Dutch business has also been affected by falling oil prices. Only two weeks ago it unveiled 250 job cuts in the North Sea and changes to shift patterns for North Sea workers in a bid to cut costs.
Last week BG poached two officials from Statoil, including Katie Jackson as vice-president for global strategy and business development. Jackson had been responsible for mergers and acquisitions at Statoil under Lund’s leadership. But Shell is a strong enough business to be in a position to buy assets in order to be well placed to cash in when prices eventually rebound. Buying proven oil and gas assets when prices have fallen is far cheaper than exploring for new reserves.
Oil executives have been predicting a round of consolidation among oil and gas companies as a result of the lower oil price, as was witnessed in the 1990s, when BP and Exxon both snapped up rivals.
Shell’s chief financial officer, Simon Henry, said in January that the company was not ruling out buying assets that would increase its production base.Shell’s chief financial officer, Simon Henry, said in January that the company was not ruling out buying assets that would increase its production base.
BG and Shell both have huge interests in the LNG market – gas that can be shipped around the world in tankers.
BG has had a difficult couple of years. Once a stockmarket favourite, it fell out of favour as its performance faltered. Its shares are down around 30% on a year ago.
BG’s chief executive departed nearly a year ago and the group’s chairman Andrew Gould took over, saying it was key that BG “accelerate the creation and delivery of longer-term value for our shareholders”.
At that time there was widespread speculation that BG would become a takeover target, with many City oil experts predicting Exxon would make a move on the British business.
BG’s directors recently faced rebellion among its shareholders for plans to reward a new boss, Helge Lund, with a £25m pay package.
In order to avoid an embarrassing protest vote, Lund – lured to BG from his previous position as chief executive of Norway’s Statoil – agreed to accept less and for his bonuses to have more stretching targets. Last week the BG board admitted it “did not strike the correct balance” on pay when it offered Lund the first deal.
Lund, who is BG’s third boss in three years, joined BG in February and last week he hired two former Statoil executives, including Katie Jackson as vice-president for global strategy and business development.
Jackson had been responsible for merger and acquisition deals at Statoil under Lund’s leadership.