The big news today is the proposed £47 billion takeover by Royal Dutch Shell of BG Group. If the deal goes through, it will be the largest deal in the oil and gas sector since Exxon acquired Mobil in 1998.
BG Group, which has seen its share price plummet in value by 30 per cent in the last year and reported a loss of £5.3 billion in the last quarter of 2014, was an obvious target and Shell will be keen to take advantage of BG Group’s LNG assets.
This deal is the latest sign of a trend towards consolidation in the oil and gas sector, due to an oil price that has plunged by 50 per cent in the last year and which has suffered heavy losses due to high production and exploration costs. Companies operating in the North Sea have been particularly hard hit. BG Group’s shares opened up 42 per cent. on the back of this news.
Shell is offering investors a 50 per cent. premium on BG Group’s current share price. This can only be seen as a sign of Shell’s confidence in the prospects for the sector as they are prepared to run the risk of short-term volatility with the expectation of long-term rewards.
We anticipate that there are many more takeovers on the horizon.