Snipped from the FT. Shell/BG
The deal is transformational for Shell. Its reserves will increase by about a quarter and its production rise 20 per cent. It will gain access to BG’s big gas discoveries off the coast of Tanzania, and also its enormous Queensland Curtis LNG project in Australia.
But Brazil is the key prize for Shell with the BG deal. Mr van Beurden said the enlarged group’s output from Brazil would be 550,000 barrels a day by the end of the decade — four times more than their current production. Wood Mackenzie, the energy consultancy, estimated that by 2025 Brazil will be the biggest single country position in the Shell-BG portfolio.
The deal will also cement Shell’s dominance of the business of producing, exporting and trading LNG. By 2018, Shell-BG will control sales of 45m tonnes per annum of LNG, making it easily the largest seller of the fuel in the world.
Shell was at pains to stress the financial strengths of the combined company. There would be savings of $2.5bn a year by 2018, and the enlarged group would divest assets worth $30bn between 2016 and 2018.
But for Shell shareholders, said Jason Gammel of Jefferies, there is a downside. He highlighted that the transaction will be dilutive in terms of earnings per share in 2016 and 2017, and that Shell’s net debt position will grow to about $61bn after the deal.
There was some concern among shareholders that the deal would strain Shell’s balance sheet and potentially put its dividend at risk.
Another potential hazard: antitrust issues. Mr van Beurden acknowledged that Shell would face competition questions in Australia, Brazil, China and Brussels, though the company had so far not identified any “insurmountable” problems.
But despite the risks, most investors saw the logic of the tie-up, and expressed admiration for Mr van Beurden’s boldness. “Any of the majors who don’t make such a move in this environment will regret it,” said Mr Whall. “Exxon really missed out here.”
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