M & A Still hot and picking up.
By Daniel Dicker Follow |
Apr 08, 2015 | 10:45 AM EDT
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NEW YORK (Real Money) -- Royal Dutch Shell's (RDS.A - Get Report), (RDS.B - Get Report) $70 billion bid for U.K.-based BG Group, one of the largest buyouts in the energy space in decades, raises more questions than it answers. But the big question is what the other super majors, particularly ExxonMobil (XOM - Get Report), are thinking in light of this big deal. Are they also looking for mega-deals of their own?
The Shell-BG deal points to a consolidation theme -- which I address in my upcoming e-book, Shale Boom, Shale Bust -- as part of the second phase of collapsing oil prices. Crumbling oil and gas prices have left dozens of oil companies in dire straits, with overleveraged debt positions without the revenue to support them.
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On the other side of potential deals are cash-rich major oil companies, whose difficulty in the last several years has been growing enough production to match exploration budgets. With share prices coming down, I have been expecting a whirlwind of consolidation to begin as the majors look to buy production that they can't intrinsically grow. Shell buying BG Group is an example of this.
Shell's long-standing corporate bias towards natural gas has put BG Group on its "most wanted" list for years. Former Shell CEO Peter Voser was obsessed with liquid natural gas (LNG). I recall several presentations he made at various conferences where you'd wonder if Shell produced oil at all, or if it was a dedicated gas company. It was that focus on gas and LNG that seemed to get Voser fired, and I figured that new CEO Ben van Beurden would shift the focus to liquids and crude. But with this deal, it is clear that Shell is returning to its old themes.
