BG and Shell could be just the first of many energy mergers

The halving of the oil price could herald a rash of mergers and acquisitions in the energy sector

Helge Lund is one lucky man. The new chief executive of BG only arrived in February, and within a month its chairman received a call from Royal Dutch Shell. The message was that Shell wanted BG, so were they interested?

They certainly were. And the good news for Lund was that his pay package is linked to how well BG’s share price performs. It is up 40% thanks to the Shell bid. Lund is likely to pick up £25m for being in the right place at the right time. Kerching!

There is more than a little irony in this. BG faced a huge shareholder backlash when it first appointed Lund and offered a £25m pay package. The Institute of Directors slammed it as “excessive, inflammatory and contrary to the principles of good corporate governance”. Such was the anger, the deal was scaled back and more stretching targets applied. But now he could get the full original payout, faster than anyone anticipated. He will simply have to stay at the helm of the business for about a year, until the merger is complete.

BG says Lund knew nothing of the likely Shell approach before joining from the Norwegian oil company Statoil, but it should not have come as a complete surprise that the company would be sought out by one of the sector’s big boys. In the late 1990s and early 2000s – the last time the oil price was in the doldrums – there was a rash of mergers and acquisitions: ExxonMobil, BP-Amoco, and then Chevron and Total-Elf. And BG has been touted as a potential bid target ever since a series of profit warnings and the departure of Lund’s predecessor, Chris Finlayson, a year ago.

Those mega-deal days are now back, with the halving of the price of crude explaining why BG is attractive to Shell. Exploration and extraction in inhospitable parts of the world looks a lot less attractive after the price of oil halved to below $60 (£40) a barrel. Far better, Shell believes, to splash out £47bn so that it can get its hands on BG’s Brazilian reserves and its liquefied natural gas assets.

Pascal Menges, who manages the Lombard Odier global energy fund, is almost certainly right when he says the Shell-BG deal will be the first of many. Other companies, he says, will be looking to improve the quality of their portfolios by picking up smaller rivals made vulnerable either by underperformance, the falling oil price or, in the case of BG, both. Further consolidation of the industry looks inevitable.


Larry Elliott

The GuardianTramp

Related Content

Article image
Shell agrees to buy BG Group for £47bn
One of the largest takeovers in oil sector for 20 years comes after fall in crude prices, as gas group’s CEO looks set to receive £25m in exit pay deal

Julia Kollewe and Sean Farrell

08, Apr, 2015 @1:21 PM

Article image
Shell to shed further 2,800 jobs after BG takeover
Cuts will affect 3% of global workforce as Anglo-Dutch oil giant seeks to cut costs to cope with oil price slump and rationalise operations after £40bn deal

Sean Farrell

14, Dec, 2015 @12:38 PM

Article image
Shell to close three UK offices housing 1,600 staff
Oil company announces closure of sites including BG’s headquarters in Reading following takeover earlier this year

Nick Fletcher

25, Apr, 2016 @12:56 PM

Article image
Time for Shell boss to master art of renegotiation
While it would be embarrassing for Ben van Beurden to push BG Group for better terms at the 11th hour, embarrassment should not enter the equation

Nils Pratley

14, Dec, 2015 @7:25 PM

Article image
Shell shareholders vote for BG Group takeover despite opposition
More than 80% of investors support deal, but Shell chief Ben van Beurden must win BG investors’ backing to complete merger

Terry Macalister Energy editor

27, Jan, 2016 @2:25 PM

Article image
Shell vows to sell $10bn extra assets as profits plunge 87%
Collapse in oil price hammers profits as BG takeover looms but CEO pledges not to conduct a fire sale or cut more jobs

Terry Macalister Energy editor

04, Feb, 2016 @10:43 AM

Article image
Shell profits plunge on Arctic drilling retreat and Canadian write-offs
Oil company reveals quarterly loss of $7.4bn but refining and marketing business provide strength for cash flow

Ian Griffiths

29, Oct, 2015 @3:14 PM

Article image
Shell warns of 50% cut in profits amid plunging oil price
Annual figures likely to be further hit by up to $7bn in writedowns as takeover deadline for rival BG looms

Terry Macalister

20, Jan, 2016 @8:11 AM

Article image
Shell still has to prove its BG Group takeover is a slick deal
As its £55bn purchase moves closer, falling oil prices mean Shell’s offer is less compelling than when first announced

Nils Pratley

02, Sep, 2015 @7:09 PM

Article image
Shell makes further cost cuts of £650m to keep BG takeover on track
Oil company says doubling cost savings will help make deal to be completed next year work in face of low price per barrel

Sean Farrell

03, Nov, 2015 @12:43 PM