Shell sees BG deal working at oil prices averaging $50 for two years
08 January 2016
Royal Dutch Shell has told investors its purchase of UK gas giant BG could work even in the event oil prices averaged $50 a barrel for two years, its lowest estimate to date, as it sought to secure shareholder support for the $51-billion deal amid falling crude markets.
The Anglo-Dutch group remained confident of the deal receiving support from investors at the meeting set for 27 January, even though crude prices were languishing near 12-year lows around $32 a barrel, and it faced a cut to its credit ratings due to higher debts, Reuters reported.
When the deal was announced in April 2015, oil was trading around $55 a barrel. The deal, at the time was viewed by investors as a bold move to buy a weakened rival on the expectation that prices would recover to around $90 per barrel within three years.
According to Shell's initial estimates the combined group would be profitable with prices in the mid $70s, though it had said last month that the merger would work in the low $60s, as it identified new synergies and cost cutting opportunities.
According finance chief Simon Henry who spoke to analysts on Wednesday, Shell had conducted stress tests that showed it could withstand oil at $50 a barrel over the next two years, Reuters said, citing sources.
An influential shareholder group was expected to support the bid for gas specialist BG Group, thisismoney.co.uk reported.
The deal would need over 50 per cent of its investors and 75 per cent of BG's to give their thumbs up, but the collapse in the price of oil – down more than 70 per cent since summer 2014 – had made the deal difficult.
Shareholders would cast their vote on 27 and 28 January.
According to the Financial Times, The Institutional Shareholder Services, an investor advisory board, would recommend the deal.