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Big Oil is about to get even bigger

‘Supermajor’ Royal Dutch Shell is spending about €64 billion on a smaller rival.

Image: Vironevaeh

ROYAL DUTCH SHELL – one of the world’s five “supermajor” oil producers – has announced a mega takeover deal for a British rival.

The company announced it had struck a £47 billion (€64 billion) agreement to buy the BG Group in a move which would create the second-biggest energy company by market value.

The boards of both firms have signed off on the tie-up which represents a premium of about 50% on BG’s last closing share price.

“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 the announcement.

The proposed merger, which still needs to be cleared with shareholders, marks the first major consolidation in an industry that has been reeling from a global oil glut.

Other supermajors like BP, as well as junior explorers, have been re-drawing production plans and scrapping their more-expensive projects after the price of oil halved in the space of six months.

Oil Source: Nasdaq

The fall has been driven by weak global demand coupled with oversupply from US shale oil producers and the OPEC consortium.

Accendo Markets senior trader Marc Kimsey said the deal would prompt further consolidation in the sector as low energy prices forced down the value of smaller companies and made them more attractive for takeovers.

In the last year BG shares fell 30% … by comparison, sector behemoths BP and Royal Dutch Shell have only shed 10% the same period leaving them in the position of predator rather than prey,” he said.

- With AFP

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About the author:

Peter Bodkin  / Editor, Fora

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