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Royal Dutch Shell plc and BG Group plc merger

Screen Shot 2016-02-06 at 08.47.20By Brett Owens: Forbes.com: 6 Feb 2016

The Royal Dutch Shell plc ADR (RDS.A) and BG Group plc ADR (BRGYY) merger, which looked liked such a win-win for everyone has grown a bit complicated as the deal nears completion. The premium has shrunk, as have the benefits of the merger with prices under $90 a barrel.

However, there are still some takeaways for investors to breathe easier about. First, Shell has never cut or suspended its dividend in 40 years. That includes the late 1980s when oil was at $10. And despite a 56% drop in fourth quarter profits, the firm has reiterated it will maintain its dividend for 2016.

The firm has delayed capital expenditures and cut spending. It plans to slash another 3% of its employees this year after the merger.

The Shell BG merger increases Shell’s reserves by 25% and its output by 20%. More importantly, it makes Shell a well positioned producer of LNG – a segment that is growing internationally as oil declines. The merger takes Shell from third to the second largest public oil producer by capitalization after Exxon.

Shell currently pays an 8.4% dividend. The merger only improves the bottom line and its ability to pay dividends as BG is profitable. But as with every energy firm not named “Exxon” I’d wait for the dust to clear on this one.

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