Merged company will boast market value twice the size of BP, surpass Chevron

Royal Dutch Shell Plc agreed to buy BG Group Plc for about 47 billion pounds ($70 billion) in cash and shares, the oil and gas industry's biggest deal in at least a decade.

The acquisition is the most significant response yet to the slump in oil prices and could set in motion a series of mergers as the largest energy companies look to cut costs and restore profits.

Shell will pay 383 pence in cash and 0.4454 of Shell's B shares for each BG share, BG said in a statement on Wednesday.

That's equal to about 1,367 pence a share and gives BG a market value of about 47 billion pounds. It's a premium of about 50 percent on BG's closing share price on Tuesday.

The merged company, led by Shell Chief Executive Officer Ben van Beurden, will boast a market value twice the size of BP Plc and surpass Chevron Corp. Shell, struggling to rebound from its worst production performance in 17 years, will swell its oil and natural gas reserves by 28 percent with the combination and inherit a management team that carved out a unique niche in liquefied natural gas, or LNG.

Shell, which helped pioneer the process of liquefying gas for shipment aboard tankers decades ago, and rivals such as Chevron are betting LNG will play an increasing role in emerging economies seeking alternatives to dirtier energy sources such as coal.

The fundamental logic of a merger "always existed, what has happened in the last month is that it has become very compelling from a value perspective", Van Beurden said on a conference call on Wednesday.

The new company will be the largest producer of LNG among international oil companies and gas is a "very important" component of the deal, he said.

Shell's B shares fell as much as 4.5 percent in London to 2,110 pence. BG shares rose as much as 43 percent to 1,300 pence.

Shell's pursuit of BG disrupts the prevailing view among analysts and bankers who expected merger activity in the industry to remain quiescent until later this year or even 2016.

The talks could presage a repetition of the wave of deals a decade-and-a-half ago that rocked the oil patch and created today's so-called supermajors.

(China Daily USA 04/09/2015 page16)