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Royal Dutch Shell in Talks for BG Group, a Gas Producer

Screen Shot 2015-04-08 at 08.12.04Article by STANLEY REED and MICHAEL J. de la MERCED PUBLISHED APRIL 8, 2015 BY THE NEW YORK TIMES

Royal Dutch Shell in Talks for BG Group, a Gas Producer

“That calculus could change if Shell and BG merge. A deal of this size could inspire some wavering would-be sellers to pursue deals. Advisers say that they expect mergers activity to pick up this year, mostly once oil prices show more signs of stability.”

LONDON — The British oil and gas producer BG Group said on Tuesday that it was in advanced discussions with Royal Dutch Shell over a potential sale. A deal could top $50 billion.

BG Group added that there could be no certainty that an offer would ultimately be made by Shell.

Still, two people briefed on the matter said that an agreement could be announced soon. A Shell spokesman, Andy Norman, declined to comment.

BG has a market value of $46 billion. Its shares rose about 6.7 percent in London trading on Tuesday.

The company, which was once part of British Gas, would be attractive to Shell because it is a major player in liquefied natural gas — a fuel whose use is growing fast though prices have recently slumped. Shell has invested heavily in the L.N.G. business.

If completed, the sale would be a rare bright spot for energy deal makers, as oil and gas companies have largely hunkered down while petroleum prices plunged. Potential sellers have been leery of selling during what they consider a temporary dip, creating an often unbridgeable gap with interested buyers.

Many companies have instead turned to the stock markets to raise cash and bolster their balance sheets.

That calculus could change if Shell and BG merge. A deal of this size could inspire some wavering would-be sellers to pursue deals. Advisers say that they expect mergers activity to pick up this year, mostly once oil prices show more signs of stability.

Consolidation could allow oil companies to cut costs and bulk up their presence in attractive sources of oil and gas.

A deal for BG would be the biggest energy company acquisition since Exxon Mobil’s $31 billion deal for XTO Energy more than five years ago.

And BG would be Shell’s biggest deal ever, by far. The company’s largest acquisition to date was its purchase of a 22 percent stake in Shell Canada that it did not already own for about $7 billion.

Shell has plenty of resources to strike a deal in any case: It had $21.6 billion in cash and short-term investments on hand as of year end.

BG has long been rumored to be a takeover candidate, but recent troubles may have made it vulnerable. The company has recently been unable to fulfill its export commitments of liquefied natural gas from Egypt because the Egyptian government has taken too much gas for domestic consumption.

It is also heavily committed to developing oil fields in Brazil, where the state oil company, Petrobras, is deeply enmeshed in a corruption scandal.

For 2014, BG reported a $1.1 billion loss, largely because of write-offs as a result of lower oil and gas prices.

BG has also recently experienced leadership turmoil. Last year, the company’s chief executive, Chris Finlayson, resigned suddenly. He was replaced in February after an interregnum by Helge Lund, who had been chief executive of the Norwegian state-controlled major, Statoil.

Shell also has a fairly new chief executive. Ben van Beurden, who became C.E.O. of Shell in 2014, has been selling assets and cutting costs after a series of poor performances. The company is also gearing up for an expensive campaign opposed by environmental groups to drill off Alaska.

Last year the company reported income of about $15 billion, a decline of about 8 percent compared with a year earlier. Mr. van Beurden has clearly identified L.N.G., which makes a strong contribution to Shell’s earnings, as a business he wants to bolster.

News of the discussions between BG and Shell was reported earlier by The Wall Street Journal.

Stanley Reed reported from London and Michael J. de la Merced reported from San Francisco.

SOURCE

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