Shell shareholders approve $49-bn acquisition of BG Group

Royal Dutch Shell shareholders yesterday approved its $49-billion takeover of BG Group, clearing one of the biggest deals in the energy sector in the past decade, even as oil prices have declined to an over 11-year low.

Around 83.08 per cent of shareholders voted in favour of the deal, while 16.92 per cent opposed the merger. Shell only needed a simple majority to seal the deal.

BG shareholders are also expected to approve the merger today.

Post shareholder voting, Ben van Beurden, CEO of Shell, said he was "delighted with the positive shareholder vote and the confidence that shareholders have shown in the strategic logic of the combination of Shell and BG".

In early April 2015, the European petroleum giant had struck a deal to buy Britain's BG for $69.6 billion including debt to create a merged company with a market cap of over $296 billion and annual revenues of $440 billion. (See: Shell to buy Britain's BG Group for $69.6 bn)

A few shareholders of Shell questioned the merger since oil was trading at about $55 a barrel when the deal was announced in April, but has fallen sharply since then and is currently trading at around $30 a barrel.

Simon Henry, CFO of Shell agreed that the decline of oil price from $50 a barrel to $30 would reduce cash flows from the merged company by $8 billion a year and if oil prices continue to be low for the next two years then the financial viability of the deal may indeed be stretched.

He said that a decline in the price of a barrel of oil by every $10 would reduce $4 billion off the combined Shell-BG cash flow.

The combined company would overtake Chevron Corp as the world's second-largest oil and gas producer and close on to market leader Exxon Mobil.

A successful BG deal would be Shell's largest acquisition after its $7-billion purchase of the 22-per cent stake in Shell Canada that it did not already own.

The acquisition will add some 25 per cent to Shell's proven oil and gas reserves and 20 per cent to production, and provide it with an enhanced position in competitive new oil and gas projects, particularly in Australia LNG and Brazil deep water.

With a current market value of $46 billion, BG Group, Britain's third-largest energy company, was formed in 1997 after the break-up of UK's state-owned utility British Gas.

The Reading-based company operates in 24 countries across Africa, Asia, Australasia, Europe, North America and South America and produces around 680,000 barrels of oil equivalent per day.

It is the largest supplier of LNG to the US and will be the largest contracted supplier to China by 2017.

The London Stock Exchange-listed company has a market value of $46 billion and posted revenues of $19 billion last year.

Shell is one of the world's largest energy companies and one of the six oil and gas super-majors with a market value of about $192 billion and annual revenues of $421 billion.

The Anglo-Dutch company operates in over 70 countries, produces 3.1 barrels of oil equivalent per day. It is also among the world's largest natural-gas companies and has sold 24 million tonnes of LNG last year.

A deal between the two energy companies comes amid the recent collapse in global oil prices and BG's record $5-billion loss in the fourth quarter.

Both companies, like other rivals, have scaled down on spending on new projects. Shell recently announced that it would reduce its planned capital spending over the next three years by $15 billion, while BG Group said it would write down the value of its oil-and-gas assets by nearly $9 billion due to fall in oil prices.

A potential deal would give Shell the offshore Brazilian oil blocks of BG Group as well as its undeveloped gas blocks in East Africa and its massive $24 billion Queensland Curtis liquefied natural gas project in Australia.

Post merger, Shell expects to make substantial disposals of non-core assets of around $30 billion during 2016 to 2018.