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BG staff must compete for jobs after Shell takeover, says boss Helge Lund

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By Andrew Critchlow, The Telegraph Commodities Editor: Article Published 9:53PM BST 10 May 2015

BG Group chief executive Helge Lund speaks exclusively to Andrew Critchlow about his plans to prepare the company for its mega takeover by Shell

When BG Group hired Helge Lund as the company’s new chief executive late last year it came at a high price.

Mr Lund – who had previously been head of the Norwegian state-oil giant Statoil – was handed a large remuneration package that, with bonuses, could be in the region of £25m. In return, he would take the top job at a company that appeared to be lurching from one crisis to another following the sudden departure of the previous chief, Chris Finlayson.

Under Mr Finlayson, who had been in the job for less than a year, BG had suffered a number of production issues and a profit warning just as the oil and gas industry was about to enter a deep downturn, with Brent crude prices plummeting to around $50 per barrel.

The arrival of an industry heavyweight like Mr Lund, who in Norway is known as “Mr Oil”, came just in the nick of time. However, the appointment was immediately mired in controversy over his pay package, which although heavily weighted to the company meeting key performance targets, was seen by some as excessive at a time when boardrooms were being encouraged to temper levels of executive pay.

Then last month came the £47bn takeover offer for BG from Royal Dutch Shell. Mr Lund had barely got his feet under the desk when news of the Shell deal broke. To be fair to Mr Lund, BG had been rumoured to be a possible target for the Anglo-Dutch company for months. Oil prices hitting the doldrums was expected to provoke a wave of merger and acquisition activity in the sector as the super majors, such as Shell, took the opportunity to snap up smaller rivals at attractive valuations. After the year that BG had, it fell squarely into the category of the hunted and not the hunter.

Speaking exclusively to The Telegraph, Mr Lund said his job was to deliver BG to Shell in the best possible condition, even though he will soon be looking for another job.

“My focus is now to deliver on the deal and this takes 100pc and more of my time,” said Mr Lund. “I will not continue into the new group so I will leave when the deal is done. I have not thought about what the next steps are yet.”

First-quarter results at BG, like its peers, were hit by the downturn in energy markets. The company’s core earnings dropped 41pc to $1.59bn (£1.03bn), while pre-tax profits were down to $708m from $1.9bn a year earlier.

“The last year has proved what we have always known about commodity markets; that they are volatile and cyclical. This quarter has also been impacted by the offer from Shell, of course, which has taken a lot of our focus. Now we are really focusing internally at BG on two aspects. Firstly, to deliver a high-performing BG into the new group in a year’s time or so, and secondly to realign ourselves so our people can compete on equal terms for new jobs in the combined group,” said Mr Lund.

The company, which is based in Reading, employs around 5,000 people, who are understandably nervous about their long-term futures given that such takeovers often lead to redundancies. However, preparing a company for a takeover of this scale is very different to previous experiences for Mr Lund, who was very much focused on upstream expansion when at the helm of Statoil.

“In Statoil, a takeover was never very likely so we never had to spend much time on that. Here, the board has recommended a takeover unanimously, so we are working now really hard to deliver our commitments and plans for 2015 so we can deliver a fast-moving company into the new group. A significant part of the value in BG is the culture and the entrepreneurial spirit,” he said.

Despite a tough quarter, there were some positives that bode well for BG ahead of the takeover being finalised, probably by next year. The company’s trading arm performed well in the first three months and at the end of December it loaded its first shipment of liquefied natural gas (LNG) from the $20bn Queensland coal seam gas project in Australia.

The project, which has suffered cost overruns due to fluctuations in the value of the Australian dollar and the rising cost of labour and materials, involves 2,000 wells spread across an area of 4,500 square kilometres.

“There was a cold spell in North America. We have a flexible business model so we can move quickly to capture benefits from the price spikes during those weeks. I think this speaks for the competence of our people but also because we have a quite flexible model. We have increased our guidance also, due to the fact that forward gas prices have increased since we gave guidance in January,” said Mr Lund.

On the future of gas, especially LNG, Mr Lund is bullish. Demand for the fuel is expected to grow as China shifts more of its coal-fired electricity generation capacity to natural gas. The drive to reduce global emissions will also buttress demand for the cleaner-burning fossil fuel through to 2040.

However, the rush to develop gas resources over the past decade and build giant LNG processing facilities has led to concerns of a glut in supply, which has been made worse by the development of shale in the US.

“When it comes to gas and LNG, the long-term fundamentals are sound. Gas will take a larger share of the energy mix going forward for sustainability and climate reasons. We have estimated growth rates of 4pc and 6pc annually over the next decade. Short term there will be significant additional volumes coming on the market from Australia and the US, and we believe that will create some volatility in the market over the next few years, but beyond 2020 we believe that new supply is needed to cover the demand. The question then will be what projects will be sanctioned that will provide new supply,” said Mr Lund.

BG, like all fossil fuel producers, is being forced to address the “carbon bubble” and called for institutional investors to sell their holdings in oil and gas companies. Mr Lund argued that BG is already taking these concerns seriously.

“Climate change is one of the most pressing issues these days, to try to solve how to produce more energy while at the same time reducing CO2. We understand that and we have a strong focus on running our business on less and less emissions,” he said.

Despite the positive outlook for “greener” gas over the long term, oil prices remain a concern for the entire industry. According to Mr Lund, BG isn’t spending much time worrying about the price of the black stuff or the machinations of the Organisation of the Petroleum Exporting Countries (Opec).

“On the oil market there are so many commentators focusing on giving accurate predictions on where the oil price will go but the common denominator is that most people are wrong, so we don’t spend much time on that. We try to run our business to the best of our abilities and particularly to make sure that we can build and prosper even in a lower oil price environment,” he said.

Although the board of BG has recommended the Shell offer to shareholders, the company remains vulnerable to another approach until the deal is finalised. Could another suitor emerge, perhaps from Asia, to trump Shell’s offer with an eleventh-hour counter bid?

“I cannot speak for a third party. I can only say that if that if there is a third party prepared to make an attractive bid, it is our responsibility to assess it. But we’re not speculating on that,” said Mr Lund.

For Mr Lund, combining BG with Shell, which already has a dominant global position in LNG, is the perfect fit. He argued that BG will also add significant technical strengths to the Anglo-Dutch major.

“The new company will have particular strengths in certain areas. One is deepwater in Brazil, which is one of the most attractive areas globally. The second is gas, and the acquisition will strengthen Shell’s position following a combination,” he said.

Last week, Mr Lund and BG chairman Andrew Gould faced the wrath of shareholders at the company’s annual general meeting at the Hilton Hotel over the Norwegian’s remuneration. One in five votes cast at the meeting refused to support the company’s pay report in opposition to Mr Lund’s package, which admittedly is heavily weighted towards challenging performance targets.

“We have to understand the interest around this issue and the right of shareholders to voice their views. In terms of the package I cannot comment on that at this stage,” said Mr Lund.

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