Shell's $92.4b deal for BG creates global energy giant

Shell, struggling to rebound from its worst production performance in 17 years, will swell its oil and natural gas reserves by 28 per cent.

Royal Dutch Shell has agreed to buy BG Group for about 47 billion ($92.4 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.

The deal is equal to about 13.67 a share and gives BG a market value of about 47 billion. It's a premium of about 50 per cent on BG's closing share price yesterday.

The merged company, led by Shell chief executive Ben van Beurden, will boast a market value twice the size of BP and surpass Chevron.

Shell, struggling to rebound from its worst production performance in 17 years, will swell its oil and natural gas reserves by 28 per cent with the combination and inherit a management team that carved out a unique niche in liquefied natural gas (LNG).

Shell, which decades ago helped to pioneer the process of liquefying gas for shipment aboard tankers, 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, van Beurden said. "What has happened in the last month is that it has become very compelling from a value perspective."

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

Shell's pursuit of BG shakes up 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 deal 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.

"Any and all combinations are now on the table and this will absolutely be a trigger event, both for strategic companies and private equity," Dennis Cassidy, co-leader of the oil and natural gas practice for consulting firm AlixPartners, said before the deal was announced.

The Shell-BG deal will combine Europe's largest oil explorer by market value with the No 3 UK-based energy producer, and is the industry's biggest in at least a decade, according to data compiled by Bloomberg.

- Bloomberg