Shell to take over BG Group

The Sydney Morning Herald has reported that oil and gas company Royal Dutch Shell looks set to take control of a $26 billion LNG processing plant in Queensland after agreeing to a $91 billion takeover of BG Group. The two companies confirmed last week they would push ahead with what will be one of the biggest energy deals in history. The size of the transaction is rivalled only by the US$80 billion merger of Exxon and Mobil in 1998.

The Shell-BG deal is expected to deliver US$2.5 billion worth of synergies and a significant proportion of those will be in Australia, where BG has the Queensland Curtis LNG facility and Shell has a large portfolio of coal seam gas through its Arrow Energy joint venture with PetroChina.

The Shell-BG deal will be completed via a court-sanctioned scheme of arrangement and will be subject to votes by Shell and BG shareholders. Directors of both companies have recommended the deal to shareholders. The deal is not expected to be complete until early 2016.

"BG will accelerate Shell's financial growth strategy, particularly in deep water and liquefied natural gas: two of Shell's growth priorities and areas where the company is already one of the industry leaders," said Shell Chief Executive Ben Van Beurden. "The combination will enhance our free cash flow potential and our capacity to undertake share buybacks, where I expect to see a substantial increase in pace."

Shell has vowed to launch a three-year campaign of share buybacks starting in 2017 if the deal goes ahead, and also has vowed to pay a US$1.88 dividend a share this year and in 2016.

If successful, the deal would reverse the recent trend that has seen Shell shrink its footprint in Australia. The oil giant sold most of its Australian downstream business, including the Geelong refinery, to Viva Energy in 2014 for $2.9 billion and reduced its stake in Woodside Petroleum and its stake in the Wheatstone LNG joint venture in the same year.