Shell takeover of BG would increase asset sales, with CEO cool on Egypt

Shell chief executive Ben van Beurden said the focus of the combined company after proposed $70bn takeover would be on integrated natural gas.

Ben van Beurden, chief executive of Royal Dutch Shell. David Levenson / Bloomberg
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The proposed Royal Dutch Shell takeover of BG Group would result in a faster pace of asset sales and reduced investment, and Shell’s chief executive was cool on the company’s future in Egypt as the focus turns to more promising projects elsewhere.

In presentations to investors and the press to explain the rationale for the proposed US$70 billion takeover, the Shell chief executive Ben van Beurden said the focus of the combined company would be on integrated natural gas, particularly liquefied natural gas developments, and on deepwater oil projects.

The share and cash offer from Shell has been recommended by the BG board and values the company at just under $70bn, which was a 52 per cent premium to BG’s recent average share price.

Mr van Beurden emphasised the promising outlook for projects that the two companies are developing offshore Brazil, in North America – including in the Chukchi Sea north of Alaska, where a huge Shell oil rig was boarded by Greenpeace this week as it was being towed to its drilling location – as well as LNG projects in Australia.

At the same time, the Shell chief was cool when asked about projects in the Middle East.

Shell and BG both have assets in Egypt where they, in common with other international companies operating in the country, have had major difficulties during the political turmoil of the past few years, with hundreds of millions of dollars of overdue payments still owed by the government.

Shell operates a number of concessions, including the Assil and Karam fields in the Alam El Shawish West concession in the Western Desert, which began producing last November.

BG has holdings of 35.5 per cent and 38 per cent, respectively, in LNG plants at El Beheira Natural Gas Liquefaction Company and Idku Natural Gas Liquefaction Company. The company declared force majeure on the LNG business last year after the government forced diversion of gas to the domestic market rather than for export.

Asked about the future of the combined group in Egypt, Mr van Beurden said: “In valuation of things we haven’t given it a lot of value in our assessment of the combined company going forward.”

He also said he did not expect Iran to open up to investment any time soon, despite the framework deal reached last week that might lead to easing sanctions, assuming a final deal on Iran’s nuclear programme can be reached this summer.

Shell’s takeover deal was engineered by Mr van Beurden and the BG chairman Andrew Gould during discussions started on March 15, only three weeks after BG’s chief executive, the former Statoil chief Helge Lund, joined the company.

Yesterday, Mr van Beurden said that the takeover deal called for a sharp increase in the sale of assets and lower investment in capital expenditure over the next few years, especially in exploration.

Asset sales, which were $15bn by Shell alone in 2014-15, would be targeted at $30bn for the combined company in the 2016-18 period, according to the Shell chief financial officer Simon Henry.

Mr van Beurden said that the takeover would result in a review of the combined company’s portfolio “and we will de-emphasise and maybe even step out of certain areas”.

Shell has a 30 per cent interest in a major Qatar LNG project – Qatargas 4 – as well as an interest in the Pearl gas-to-liquids project. BG had a prospective block in north-east Oman, near the Saudi Arabia border, but relinquished it in 2009.

The combined company would have a market value of about $250bn, compared to $360bn for ExxonMobil, the world’s largest publicly traded oil and gas company.

Analysts said the strategic emphasis would be growing Brazil from 130,000 barrels per day to about 500,000 bpd, representing about a fifth of the company’s oil output.

“The key attractions for Shell are BG’s deepwater assets in Brazil and its LNG portfolio,” Biraj Borkhataria, an analyst at RBC Capital Markets, wrote in a research note. “BG’s LNG portfolio combined with Shell’s would represent [about] 40 million tonnes per annum or roughly 16 per cent of the global LNG market.”