Is this the deal that triggers the long forecast rationalisation in the global oil and gas business?
According to media reports in the US and the UK, the huge Royal Dutch Shell group is looking at a $US50 billion plus takeover of smaller rival, BG Group, a move that would see Shell gain LNG and gas interests around the world, including Queensland.
BG Group, a London listed company, has a market value of 31 billion pounds (or $US46 billion, or more than $A60 billion) Shell would have to offer a significant premium, meaning the value could be as high as $US60 billion, or close to $A90 billion.
BG this morning confirmed it is in “advanced negotiations” with Shell that could lead to a bid.
If it happens, it could kickstart a series of similar moves among oil and gas companies, especially in the US. Such a move has been long tipped by analysts as oil prices have fallen and US production has soared.
But so far the scale of consolidation has been less than forecast. According to analysts there were ‘only’ $US19.1 billion in oil and gas deals in the March quarter. The biggest deal so far has been the $US8.3 billion takeover of Talisman Oil, another UK independent, by Spanish energy giant, Repsol.
Last month BG took a $US8.9 billion write-down on the value of its assets in Australia and Egypt. The bulk of the charges were taken against a $U20.4 billion coal – seam methane LNG project in Queensland, BG decided to write off $US2.7 billion from the value of the project, called Curtis LNG, which shipped its first cargo of LNG last December.
A further $US4.1 billion impairment charge taken in Australia “driven mainly by a reduction in the group’s assumptions of future commodity prices,” the company reported in February. As a result the group reported a pre-tax loss of $US2.3 billion for last year, compared with a profit of $US3.9 billion in 2013.
Reports of Shell’s interest in BG group surfaced as US oil prices hit a 2015 high in New York this morning – ahead of the important weekly production and inventories update for the US tonight our time.
In fact the futures price for US West Texas type crude are up 10% in the past two days as investors breathe a sigh of relief that Iranian oil will not flood world markets immediately.
The price of WTI crude futures for delivery in May rose $US1.84, or 3.5%, to close at $US53.98 a barrel—the highest settlement since the end of 2014. In London, Brent crude futures for May delivery rose 98 cents, or 1.7%, to $US59.10 a barrel, up 7.6% in the last two days.
The rise in the crude price so far this week has pushed both Brent and WTI, the US equivalent, back into positive territory in 2015.
However, news from the oil industry that the American Petroleum Institute is reporting a 12 million barrel rise in oil stocks for last week could take the gloss off the rebound, especially if it is backed up by data in tonight’s report from the US Energy Information Administration in its weekly report.
