Shell seeking to buy BG in first oil super-merger in over a decade

April 7, 2015, 9:59 PM UTC

(Reuters) – Royal Dutch Shell is in advanced talks to buy BG Group in the first oil super-merger since early 2000s to extend its global lead in gas production and close the gap with the world’s biggest oil major U.S. ExxonMobil.

BG, which is worth $46 billion, said in a statement on Tuesday it was in advanced discussions regarding a possible offer by Shell, whose market capitalisation is $202 billion. Exxon is worth $360 billion.

“There can be no certainty that any offer will ultimately be made for BG,” BG said in a statement adding that Shell must announce a firm intention to make an offer by May 5, or announce that it does not intend to make an offer.

Discussions were first reported by the Wall Street Journal, citing sources familiar with the matter.

Oil prices have halved since the middle of 2014 due to a shale oil boom in the United States and a decision by Saudi Arabia not to cut production – creating an environment similar to the early 2000s when many super-mergers took place.

Back then, oil major BP acquired rival Amoco and Arco, Exxon bought Mobil and Chevron merged with Texaco.

A lot of bankers have argued, however, that the era of easy super-mergers was over since then and the number of fresh acquisition targets was limited.

BG, which has ambitious production growth targets and multi-billion dollar projects in Brazil, East Africa, Australia,Kazakhstan and Egypt, has long been seen as a rare potential acquisition target, including by cash-rich rivals such as Shell or Exxon.

However, the UK-based producer has its problems which could complicate any transaction, bankers familiar with BG’s operations have said.

Brazil is certainly a drag on any transaction,” one of the London-based bankers said, referring to the ongoing investigation in Brazil into corruption charges involving state champion Petrobras.

Including BG’s net debt of about $12.0 billion, any transaction would be the biggest this year and fourth largest oil and gas deal globally since 1996.

Shell declined to comment.

BG has been also plagued by problems in Egypt and took a $6 billion writedown recently.

That forced the company to rush in former Statoil A/S CEO Helge Lund in February, nearly a month ahead of schedule.

Last week BG poached two officials from Statoil, including Katie Jackson as vice president for global strategy and business development. Jackson had been responsible for mergers and acquisitions at Statoil under Lund’s leadership

(This story was updated with additional information)