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Shell to buy BG Group in $70B energy deal

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Shell to buy BG Group in $70B energy deal

Anglo-Dutch oil and gas company Royal Dutch Shell agreed Wednesday to buy Britain’s BG Group in a $70 billion cash and stock deal that creates a massive European energy giant in one of the biggest deals for the sector in a decade or more. The mega-merger comes amid a slump in oil prices. The deal, which still needs to be approved by both firms’ shareholders, will see BG Group shareholders get 383 pence ($5.70) in cash, plus 0.4454 Shell B shares for each BG share.shell_0

BG shareholders will own around 19% of the combined group that will have a market capitalization of about $240 billion — or twice as big as British oil major BP but still smaller than Exxon Mobil, the world’s largest oil company that has a market capitalization of $360 billion. The announcement sent BG’s London-listed shares rocketing 38% higher while Royal Dutch Shell’s stock price fell over 2% on Britain’s FTSE 100 index, which also saw broad-based gains on the news.

“The result will be a more competitive, stronger company for both sets of shareholders in today’s volatile oil price world,” Shell chairman Jorma Ollila said in a statement. Shell said the enlarged group would add 25% to its proved oil and gas reserves, 20% to production and that the deal would provide it with new, undeveloped oil and gas projects, particularly in Australia, Brazil, and East Africa.

Helge Lund, BG’s chief executive, said the offer delivers “attractive returns to shareholders and has strong strategic logic.” Shell said the deal would produce financial gains of around $2.5 billion a year. It also represents an opportunity for both firms to cuts overlapping costs at a time when the energy sector is vulnerable to low oil prices.

Oil prices have tumbled around 50% since June last year on sluggish global demand and amid a glut in supply. Conflicts across the Middle East as well as nuclear negotiations with Iran have further added to volatility. Some analysts, including at Goldman Sachs, are forecasting that crude prices could remain at lower levels for months to come.

On Wednesday, Brent crude prices — an international benchmark — fell 1.4% to $58.25 a barrel. That drop follows two trading sessions in which Brent saw gains. Benchmark West Texas Intermediate (WTI) crude, a separate gauge of oil prices that more closely tracks North American supply, was down $1.06 at $52.92 a barrel in electronic trading on the New York Mercantile Exchange.