A Shell statement said the tie-up would improve its proved oil and gas reserves by a quarter and lift output by a fifth, while delivering "enhanced positions in competitive new oil and gas projects, particularly in Australia LNG and Brazil deep water".
Shell offered cash and shares worth £13.50 per share - 50% more than BG's market value on Tuesday night when BG confirmed the two UK behemoths were already in "advanced talks".
"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.
Shell CEO Ben van Beurden, who hatched the deal with BG chairman Andrew Gould, said on a conference call that the combined business would sell off £20 billion worth of assets from each company between 2016 and 2018, most of which would be returned to investors via a £17 billion share buyback.
Sanford C Bernstein's Hong Kong-based analyst Neil Beveridge confirmed what Energy News forecast yesterday - that the deal would give Shell an avenue for its stranded assets in Queensland after its failed Arrow LNG project which it half owns with PetroChina was officially cancelled in January.
"The Arrow assets are stranded at the moment, so it's highly probable that if Shell's purchase of BG went through, that gas would be monetised through QCLNG," Beveridge said.
"That's definitely a source of value in any deal."
The combined group would give Shell two strategic growth businesses - deep water and integrated gas—that could potentially each generate $US15 billion ($A19.52 billion) to $20 billion of cash flow from operations a year, the Anglo-Dutch company said.
BG has valuable oil fields off the shore of Brazil and gas plays off of East Africa and on shore in Australia - which many analysts believe are too big for BG to handle.
Van Beurden said that LNG was "a very important component of this [deal]", and that BG was at the top of the list of a number of companies the super-major was considering buying.
"The whole idea is that we turn the company on the back of this deal into a much more focused company, very, very strong in gas and very, very strong in deep water."
It all started, van Beurden said, when he called Gould on March 15, barely five weeks after Helge Lund had started as BG's new CEO.
"It was very simple. I called Andrew up and we had a very good and constructive discussion about the idea and it very quickly seemed to make sense to both of us," van Beurden said.
"The logic has always been compelling. Of course the environment today has made the value piece of it a whole lot more compelling."We have been looking at BG for a long time and we thought this was the right time to move."
Van Beurden said that while he did not know Lund very well, "I know him well enough to know that I had a good and constructive and transparent dialogue with him and he said, ‘This is how I see it' - and that's perfectly ok".
The Shell CEO said Lund would stay on as BG CEO to manage things but that he would "do his own thing" once the deal was done.The Wall Street Journal said Shell and BG discussed a merger about five years ago that could have put BG's then-CEO in charge of the combined company, but could not reach an agreement.
Feeding frenzy
Accendo Markets senior trader Marc Kimsey said the merger would prompt sector consolidation, as the decline in the oil price over the past year has "battered some stocks, which are clearly now looking attractive".
"This could mark the beginning of a M&A rave, much like the one we saw in the late 1990s," Accendo research analyst Augustin Eden also said in a note.
Lombard Odier Global Energy Fund manager Pascal Menges said that only ExxonMobil, which analysts believed would be the one to target suffering BG, had the flexibility to do "big ticket deals" like BG, while the likes of Total, Eni and Statoil would "have to content themselves with the pick ‘n' mix counter".
While the Arrow issue is certainly pertinent and would boost Shell's aim of becoming the world's top dog LNG producer if the fields ever got commercialised, analyst consensus is that the big drawcard for Shell was BG's Brazilian portfolio which, while dogged by a graft probe over Petrobras, will become a key growth driver for the Anglo-Dutch super-major.
Jefferies analysts said in a note to clients yesterday that BG's Brazilian portfolio would become a key growth driver for Shell, with production set to increase to 557,000 barrels per day by 2020 from 144,000bpd this year.
"Brazil is a key strategic driver," the Jefferies analysts said.
"The transaction makes Shell the leading foreign company in Brazil."It is understood BG and other partners are struggling to communicate with Petrobras' management to address development plan delays - and the UK major was relying on its future Brazilian output to boost cash flow.
Helge's payout
Gould told reporters that Lund, who was hired to overhaul the company, had stayed at BG's Reading headquarters rather than facing analysts yesterday to brief employees about the deal and that the two-hour drive to London for the briefing was too time consuming for him.
Lund could walk away with up to £28 million, after he will leaves his post once the deal goes through next year.
"The fact is that I don't know what that amount will be - it will only be clear after the transaction is completed," Lund said yesterday, adding that he was "in full support" of the deal hatched between his chairman and Shell's CEO.
BG shares rocketed up 31.76% while Royal Dutch Shell 'B' shares were down 7.09%, with some analysts saying the offer price may turn out to be too large.
