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Shell expected to slash jobs and spending

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Royal Dutch Shell is planning a £20bn sell-off of assets to create a leaner oil giant after its £47bn swoop for rival BG Group.

Shell has snapped up BG to expand its liquefied natural gas business and Brazilian deepwater wells but the deal also creates a sprawling £200bn behemoth that will need to be cut down to size.

Shell’s chief executive Ben van Beurden said he ‘will reshape the combined portfolio’ to create a ‘more focused company in a volatile oil price world’.

The Anglo-Dutch giant is expected to slash jobs and spending and confirmed the deal will enable £670m of operational savings, £1bn of exploration savings and a total cut in spending to less than £27bn. But fears it has paid too much for its rival spooked investors and it shed £4.6bn in value as shares slumped almost 9 per cent to close down 189p at 2019.5p.

Shell is the second-largest global oil group after America’s ExxonMobil but with assets spread across continents it will be forced to curb its ambitious exploration projects.

The firm, which has more than 94,000 employees in 70 countries, bought BG for its network of assets stretching from Brazil to Australia where BG employs 5200 staff in 24 countries.

It is particularly keen on BG’s liquefied natural gas in Australia – gas that can be shipped around the world and stored on tankers – and its Brazilian deepwater assets.

Van Beurden expects the £20bn sell-off to start next year after a review of all its assets and the cash will then be returned to investors via a £17bn share buyback.

BG’s shares, in stark contrast to Shell’s, soared 26.7 per cent or 242.6p to 1153p on news of the deal.

Michael Hewson, chief market analyst at CMC Markets, said: ‘Shell’s estimates appear to be predicated on an oil price well above present levels and there is the risk that a prolonged period of low oil and gas prices could mean that the benefits of this acquisition take some years to accrue, hence the share price slide.’ Oil prices are at present around 50pc below their peak last June, when oil hit $115 a barrel.

Van Beurden said the ‘logic’ to buy BG has always been there but that the falling oil price made it a ‘whole lot more compelling’ as BG’s share price had fallen by a fifth since the oil price crash.

He expects the price of oil, which is now less than $60, to recover to above $70 a barrel. Van Beurden also defended the high premium it is paying for BG. He said: ‘We have not overpaid. This is an acceptable and normal level in the industry.’

The 1350p-a-share offer price is a 52 per cent premium to the average share price of BG over the past three months and led to speculation that the high offer was made to deter rival bids.

The deal, which has to be signed off by regulators from a number of jurisdictions, is expected to complete early next year.

The takeover will see BG shareholders paid in cash and shares to own 19 per cent of Shell.

BG’s investors will also be in line for higher dividends – Shell expects to pay 126p a share in dividends compared with 9.5p at BG.

BG’s new chief executive Helge Lund is expected to leave once the deal completes.

He joined in February but could leave the group, after just more than a year, with a payout that could be worth more than £30m if he meets all targets. But BG said Lund’s final package will be decided by the remuneration committee and is likely to be around £15m.

Ben’s towering payout 

Shell chief Ben van Beurden will soon find himself at the helm of the world’s second-largest oil company.

Despite being a surprise choice for the top job, which he only took up at the start of the year, the £47bn mega-deal to buy BG has shown that the Dutchman is audacious.

But the deal could also see his pay package – which was last year an eye-watering £20m once house-moving costs and tax bills were added in – rise.

Shell’s pay committee will decide next year whether to raise his basic pay, which last year was £4.5m including bonuses. It is also possible that a larger company will make it easier for him to hit performance targets that unlock lucrative rewards under the company’s long-term share scheme.

However, his counterpart at BG, Helge Lund, stands to gain even more – with reports that he could land a £32m windfall from his single year with the company.


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