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Shell May Need $100-per-Barrel Oil to Make BG Deal Work

Screen Shot 2015-04-08 at 08.12.04Article by Tim Mullaney published 9 April 2015 by TheStreet.com

Shell May Need $100-per-Barrel Oil to Make BG Deal Work

NEW YORK (TheStreet) — How aggressive was Royal Dutch Shell’s (RDS.AGet Report) $70 billion deal to buy British oil and gas producer BG Group (BRGYY)? So aggressive that oil may have to rebound all the way to $100 a barrel by 2020 to justify the price that Shell paid, according to an analysis by the Norwegian research firm Rystad Energy. 

The price can be taken as a measure of the pressure Shell faces to get its hands on new assets in an environment in which many offshore oil and gas assets are expensive to bring to market, and because Shell hasn’t been a major force in fracking in the United States, said Per Magnus Nysveen, head of analysis at Rystad.

Or it can be a savvy bet on a rebound, since Rystad’s long-term forecast is that oil comes back to $105 a barrel in five years.

Either way, the 50% premium Shell paid over BG’s pre-deal share price makes clear that the giants are not picking up assets on the cheap — at least not yet — thanks to the oil bust.

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