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A £36bn deal of a lifetime: Shell boss vows to protect dividends as he defends merger with BG Group 

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Screen Shot 2016-01-14 at 23.40.15By ALEX BRUMMER FOR THE DAILY MAIL: 15 JAN 2016

The stone-faced Shell building overlooking the Thames at dawn is the grand dame of the London skyline predating the towers of Canary Wharf and the London Eye.

It is from here, in a relatively modest, plainly decorated 24th floor office, with almost no personal touches, that Ben van Beurden, a Shell man for 33 years, is engaged in the boldest move of his career.

‘I’ll be very honest with you,’ he confesses to the Mail in his first major interview since the transforming bid for BG International, formerly the exploration arm of British Gas, was unveiled last April. 

‘I have never done something quite as important and significant and momentous in my personal life, my professional life and everything else.’

The only personal marker in his London office is a glass of cranberry coloured juice on the desk next to a pair of cheese and tomato rolls covered with clingfilm. 

There is no Fred Goodwin-style personal chef, ready to prepare scallops, for the down-to-earth Dutchman.

Van Beurden presides over the FTSE 100’s largest corporation with a current market capitalisation of £86billion (down from more than £100billion in December) and looks like everyone’s favourite uncle, with a soft smile and a dimple in his right cheek. 

He in some ways seems ill-suited to the world of high finance, which he entered in April last year when Shell launched its £36billion bid for BG.

As the oil price has plummeted to $30 a barrel, the wisdom of the deal, sold to the City on the basis of an oil price that was twice that, has come under heavy fire.

‘The process of creating a much better company for the longer term is not going to give me a near-death experience,’ van Beurden says.

Popular opinion in the City suggests that if Shell fails to win enough votes from Shell and BG shareholders to carry the deal on January 27 and 28 he will be getting his marching orders.

Similarly, if the Shell chief executive can’t deliver the reshaping of the company he has promised, with enormous cuts in costs, investment and big asset disposals, he may also be out.

Van Beurden acknowledges the gamble. ‘In the short-term having done this deal, having paid out probably $20billion (£13.9billion) worth of cash to BG shareholders, will this deal give me short-term trouble and will I put the company under more stress?’

He is adamant that it will make no difference. ‘It doesn’t really matter too much where the oil price comes out because the capacity of the combination is higher than the dividend capacity of the stand-alone company.’

Shell’s case is that the BG deal will leave it in a ‘better place’ irrespective of what happens to oil prices. ‘Fundamentally it gives us more exposure to liquid natural gas, which is the fastest growing part of the industry.’

It is also the stuff that keeps Britain’s lights burning and the central heating warm as the nation experiences its first cold snap of a mild and wet winter.

Van Beurden and Shell people like to think over the long term, so he easily bats away the idea that there are fundamental changes in the energy market and we are heading for an age of plenty where oil prices forever remain low.

He says: ‘The answer is, as long as the oil price over the next 20-30 years is in the low $60s this deal will have been financially, very, very sound.’

‘Some people think the oil price will be $20 a barrel and some will think that the oil price will be $120 a barrel. And it may be both are right.’

The important number for the merger, in the chief executive’s view, is now $50 a barrel, because that he says is when the acquisition ‘breaks even’.

Given that the oil price is currently well below that, what does that mean for Daily Mail readers, who are also BG investors and who have been inundating us with questions about whether to accept the bid and the impact on dividend payouts?

Van Beurden says: ‘They are going to see a huge uplift in dividend. BG doesn’t pay much of a dividend and they are going to be inheritors of the Shell dividend.’

Moreover, if the BG investors vote for the deal ‘there is a significant premium, a large part of which is basically being paid out of cash and the underlying equity. We are cashing BG shareholders out at the bottom of the cycle.’

But if BG shareholders are such winners, won’t existing Shell investors lose out?

‘Shell shareholders do have a concern about the sustainability of the dividend,’ he admits.

‘So we gave an assurance on the dividend for the next seven quarters. We are confident that in 2015 [the current financial year] it is going to be $1.80 per share and in 2016 at least that.’

Beyond that, it is going to depend on what van Beurden calls the ‘break-even’ price, which he assesses at $50 a barrel.

He insists, however, that there is more chance of achieving that price post-merger than as a stand-alone company.

It is not just Shell and BG investors who watch the oil price closely, but also the motorists.

Most want to know why petrol prices have remained so sticky at around 100p a litre when spot oil prices have fallen off a cliff.

The Shell boss is not normally used to having to address the consumer directly and argues that competition on the forecourts is ferocious with big oil having to compete ‘with supermarket chains and independents, and they all compete without the supply background’.

‘The retail entity in the UK is not making big fat profits. We just have to make a decent margin on the capital employed,’ he adds. Conducting a takeover battle, against the background of a tumbling oil price and the worst security conditions in the Middle East he has ever encountered, has not been easy.

He says: ‘I wouldn’t say it has been an obsession, but it has taken a lot of time, a lot of thinking and not just [about] the shareholder price we have at the moment and the volatile start to the year.’

At this stage, repricing or renegotiating the deal is not an option in his view because The Takeover Panel, the City referee, would insist it goes away for six months and comes back again with the new offer.

That would require it to go back to regulators around the world and seek their permission again.

There has been only one exception to that, he notes, and that was the Lloyds Bank takeover of HBOS in 2008, and No 11 was behind that. Van Beurden clearly is not expecting a similar nod from Downing Street – record low oil prices or not.

But his expertise suggests he and his advisers explored repricing before deciding against.

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