Comment: Shell’s BG move could kick–start copycats

Martin Flanagan. Picture: Fiona Hanson/PA
Martin Flanagan. Picture: Fiona Hanson/PA
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THERE is nothing like a blockbuster merger to concentrate the thoughts of other players in the relevant sector. Fears of a march being stolen, the game changing, underlying approaches and assumptions being challenged, can all dominate the boardrooms looking in on the action somewhat enviously from the outside.

That is now happening in the oil and gas sector after Royal Dutch Shell’s £47 billion recommended takeover bid for BG, the exploration and production business spun out from privatised British Gas in 1997. Which domino will be next to fall? Some believe Tullow Oil or Premier Oil may be in the sights of the majors, such as BP. However, many now see BP as being prey as much as predator, saying that it has never really recovered from the Deepwater Horizon fiasco in the Gulf of Mexico in 2010.

So who might come in for BP? One of the big US players, Exxon or Chevron, perhaps? BG was unloved by the market for quite a period, making Shell’s move easier, and BP is in much that same vulnerable position.

It is also not wise to assume that Shell/BG is a done deal. Yes, Shell has paid a handsone 50 per cent plus premium to try and deter rival bidders. But BG chairman Andrew Gould pointedly declined to comment yesterday on whether any other major oil group had picked up the phone to him to discuss industry consolidation.

There is a £750 million “break fee” if Shell’s takeover does not go ahead, and Gould pointed out that “at this point in time” BG believed this was the best combination available, but it would have a fiduciary duty to consider any serious competing offers.

The truth is that the 50 per cent fall in the oil price since last summer has fundamentally altered the sector’s dynamics on everything from capital spending to industry consolidation possibilities.

Acquisitions are now affordable and attracting more management thinking time because asset divestment programmes are being hamstrung through potential buyers not having as much money sloshing around.

Shell/BG is a throwback to the late 1990s when BP took over Amoco, Chevron combined with Texaco and Exxon and Mobil got hitched.

It would not be the greatest surprise if we saw some sort of rerun of that.

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