Shell to acquire BG Group for $70 billion

Royal Dutch Shell PLC has agreed to acquire BG Group PLC in a $70.1-billion cash and shares deal intended to sharpen Shell’s focus on integrated gas projects and deep water.

If the transaction is approved by shareholders and completed, existing BG shareholders will own about 19% of Shell.

Shell said the acquisition would increase its proved oil and gas reserves by about 25% and its production by 20%.

In its 2014 annual report, BG estimated its natural gas reserves at 11.55 tcf proved, 5.8 tcf proved and developed, and 9.25 tcf probable under the Society of Petroleum Engineers assessment method. It estimated oil reserves at 1.69 billion bbl proved, 537 million bbl proved and developed, and 1.37 billion bbl probable.

BG in 2014 produced 606,000 boe/d of oil and gas in Australia, Bolivia, Brazil, Egypt, India, Kazakhstan, Norway, Thailand, Trinidad and Tobago, Tunisia, the UK, and the US.

Of $9.4 billion in capital investment by BG last year, $6.3 billion was in Australia and Brazil.

In December, BG started production from the first train of the Queensland Curtis LNG export project fed by coal-seam gas in Australia. When both of two planned trains are in operation, liquefaction capacity will be 8.5 million tonnes/year (tpy).

BG also has LNG liquefaction capacity totaling 7.1 million tpy in Trinidad & Tobago and Egypt and regasification capacity in the US, the UK, and Singapore.

The company reported a total operating loss in 2014 of $1.417 billion after a pretax impairment of $9 billion related to the drop in the crude oil price, sale of a pipeline in Australia, and downgrade of reserves in Egypt.

Shell executives said the acquisition would boost planned asset sales to $30 billion during 2016-18 and provide cost-saving opportunities of $2.5 billion in 2018. Capital investment will be held to below $40 billion in 2016 and lower than that in 2017, and spending on exploration will be reduced, they said.

“We will refocus the company on fewer, larger themes,” Shell Chief Executive Officer Ben Van Beurden said in a presentation to investors. He identified integrated gas and deep water as “Shell’s two strategic growth priorities.”

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