28 January 2016

Royal Dutch Shell shareholders have voted in favour of the company’s roughly $US50 billion acquisition of BG Group, leaving approval by BG’s investors as the last remaining hurdle to the biggest oil-and-gas deal in over a decade.

Shell investors backed the deal with 83.08 per cent of the vote. The acquisition is expected to turn Shell into a liquefied natural gas giant and give it a dominant foothold in oil-rich fields offshore Brazil.

It follows the Australian competition regulator’s November approval for the deal, which will align Shell’s undeveloped gas in Queensland — held in the Arrow venture with PetroChina — with BG’s $US28 billion LNG export project in Gladstone.

“It is a tremendous opportunity to create value for both sets of shareholders,” Shell chief executive Ben van Beurden told a hall full of shareholders in The Hague ahead of the vote overnight (AEDT). “It is a strong platform to refocus the company to create a simpler and more competitive Shell right now and in the future.”

BG shareholders are expected to approve the deal in a vote tonight (AEDT), as no organised opposition has emerged despite concerns that merger didn’t make sense with oil prices plummeting. The $US70 billion value of the original offer has fallen to about $US50 billion because much of it was in Shell shares, which have plunged 35 per cent since the deal was announced in April.

If BG investors approve the deal as expected, the merger is expected to be completed on February 15.

Shell shares were trading down 1.58 per cent on Wednesday in London. BG shares were up slightly.

Shell’s management have pitched the deal as a means to strategically restructure the company and quickly generate cash from BG’s production. The company has said it expects to generate additional cash flow from the deal this year with oil at $US50 a barrel, but Brent crude, the international benchmark, was trading at around $US31.61 a barrel in London afternoon trading.

“As I think we all know, this is a long-term investment so we make this decision looking at the oil price over decades not what it might be in a two-month period of time,” Shell chairman Charles Holliday told investors. “I believe the future will show that that’s been a good decision.”

The merger remains the only major acquisition since oil prices began their long descent more than a year and a half ago. Shell has sat out previous rounds of deal-making, including those of the late 1990s and early 2000s, when Exxon joined with Mobil, Chevron swallowed Texaco and BP merged with both Amoco and ARCO.

This time, Shell struck first. On paper, analysts say the deal makes sense.

BG, a British oil explorer and huge global natural gas supplier, had had success in finding new oil and gas reserves but faced problems that made it a takeover target after its rapid growth stalled and oil prices began to slide sharply.

Adding BG gives Shell access to an additional 700,000 barrels a day of production and its massive liquefied natural gas network. The current market for LNG is gloomy with loads of new supply coming on soon, but Shell executives have said they would have a dominant position in a market that is set to grow as countries turn to cleaner burning natural gas to heat homes and power cities.

In Australia, industrial gas users in Queensland and NSW pushing for constraints on the deal to ensure gas from Arrow would be made available to domestic buyers instead of to LNG exports.

Dow Jones

Extracted in full from The Australian.