BG Acquisition Still Good Sense, Despite Low Oil Price, says Shell

BG Acquisition Still Good Sense, Despite Low Oil Price, says Shell

Royal Dutch Shell said on Tuesday that its planned acquisition of BG Group still makes financial sense, despite low oil prices, which analysts say are likely to continue for some time, reports Reuters.

Shell told journalists on Tuesday that even at prices in the mid $60 range, it would break even on the deal, benefiting from synergies of between $1b and $3.5b.

Acquring BG would enlarge Shell’s footprint in natural gas and enhance its dominant position in Liquified Natural Gas trading, reports MarketWatch.

Shell is aiming to coordinate the purchase with a restructuring of its oil and gas exploration operations, creating a standalone entity for integrated gas operations.

The BG acquisition could reduce Shell’s operating costs by $2b, and cut its exploration budget in 2018 by $1.5b, the company said.

Since the deal was announced in April, Shell shareholders have been concerned that falling oil prices might make the deal costly; however, Ben van Beurden, Shell’s Chief Executive, told reporters, “Although oil prices have fallen in 2015 the valuation case for the BG acquisition still looks compelling today for both sets of shareholders.”

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