Royal Dutch Shell To Buy BG Group

On April 8, Royal Dutch Shell agreed to buy the BG Group for $70 billion. It is the first major deal for an oil and gas producer since prices started falling last summer. The acquisition could provide a template in the current environment, with deep-pocketed players taking advantage of their competitors’ problems to bolster their own position.

In buying BG, Shell is concentrating on the fast-growing business of producing and selling liquefied natural gas. It will also become a major player in Brazil’s offshore oil fields, where Shell’s exposure has been small.

Shell is taking advantage of the financial struggles of BG. Before the deal was announced, BG had watched its shares fall more than 30 percent since May.

Liquefied natural gas "is a very very important component of this," Ben van Beurden, Shell’s Chief Executive, told reporters. "It is really the strength of both companies."

Deal makers have predicted that the plunge in oil prices could spark interest among would-be acquirers eager for bargains. Other potential buyers, like private equity firms, have amassed billions of dollars to hunt for new trophies.

Many of these bankers and lawyers, though, have cautioned that would-be sellers may find other ways to raise money, rather that risk auctions at fire-sale prices. For example, Whiting Petroleum, a midsize oil and gas company, chose to raise $2 billion in debt and sell 35 million shares after failing to draw an attractive takeover offer.

But the attractions of energy mergers — including the benefits of greater scale and the ability to move into productive fields of oil and gas — may ultimately compel many players to the negotiating table.

Shell, in large part, is betting on a changing international energy market. As global energy needs have soared, companies are looking to liquefied natural gas, or LNG, to meet the demands. The process involves supercooling natural gas into a liquid that can be transported around the world on ships. By doing so, natural gas has become a global commodity, with companies bringing supplies from remote locations in Africa to energy-hungry markets like China and India.

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