Oil major Shell yesterday hailed its blockbuster $52.6 billion (£36.4bn) takeover of rival BG Group as a important step as it looks to become a leaner and more competitive company.
The mega-deal – creating the biggest trader of liquefied natural gas – came into force after shareholders waved through the tie-up at the end of
Chief executive Ben van Beurden said it marked an “important moment for Shell”, which would bolster its cash flow and “significantly boost” its reserves and production.
The impact of the deal – coupled with the low oil price – will lead to 10,000 job losses, with Shell already cutting 7,500 staff, while a further 2,500 positions are expected to be lost now the deal is complete. Shell also looks set to offload $30bn of assets.
“We have acquired productive oil and gas projects in Brazil and Australia and other key countries,” van Beurden said.
“We will now be able to shape a simpler, leaner, more competitive company, focusing on our core expertise in deep water and LNG.”
Shell described the takeover of BG as a “new chapter” earlier this month when it announced an 80 per cent plunge in annual profits triggered by the tumbling oil price.
There have been concerns over the rationale for the deal following the recent hefty falls in oil prices due to over-supply and falling demand as the world economy slows. The cost of crude has collapsed by more than 70 per cent since a peak of around $115 a barrel in the summer of 2014.
Shell has priced its BG acquisition based on oil prices rising sharply from their current low levels – predicting a bounce back of more than 35 per cent this year and further rises next year. Shell saw full-year earnings tumble to $3.8bn in 2015 from $19bn in 2014, when it reported its annual results at the beginning of February.
However, BG Group showed signs of resilience when it revealed its full-year results days later, guiding the business back into the black despite continued pressure from tumbling oil prices. The company announced that it had driven home a full-year pre-tax profit of $3bn for 2015, turning the business around from a $2.3bn pre-tax loss the year before.
It came as rival energy giant BP posted its largest annual loss for at least 20 years at the beginning of this month and unveiled a further 3,000 job losses. It revealed that it had slumped into the red by $5.2bn in 2015, surpassing even the mammoth losses seen in the wake of the Deepwater Horizon explosion and oil spill.
The completion of the Shell/BG deal yesterday came as a report said that oil and gas firms needed to expand their focus beyond short-term issues such as falling oil prices and over supply if they are to successfully navigate the “disruptive forces” that will shape the industry.
PwC’s New Energy Futures report said that in the wake of December’s climate change agreement in Paris, the momentum to replace fossil fuels with cleaner energy sources is gathering pace.
Viren Doshi of PwC said: “Global demand for affordable, reliable energy will continue to grow for the foreseeable future, but there is a new longer-term backdrop, as the world transitions to a low carbon system. Momentum to replace fossil fuels with cleaner energy sources is building and oil and gas companies need to consider their futures.”