Shell Targets Gains From Brazil to LNG With Takeover of BG Group
2:11 PM BRT
April 8, 2015
(Bloomberg) Royal Dutch Shell Plc’s 47 billion-pound ($70 billion) acquisition of BG Group Plc, the oil and gas industry’s biggest deal in at least a decade, combines the two companies’ assets from Brazil to Australia and the North Sea.
Shell is targeting $2.5 billion of pretax “synergies” a year across the globe from the deal, including staff cuts. Here’s a look at the worldwide effects:
The purchase will increase Shell’s access to deepwater fields off Brazil and give the merged entity more heft in its relations with local partner Petroleo Brasileiro SA. BG’s portfolio will make Shell the leading foreign oil company in Brazil, according to Jefferies analysts led by Jason Gammel. BG’s production is set to increase to 557,000 barrels a day by 2020 from 144,000 in 2015, Jefferies said.
BG has non-operating stakes in five blocks in the pre-salt area, an offshore region where Petrobras made the world’s largest discovery in at least three decades from 2006 to 2007. Shell also has partnerships with Petrobras, including the giant offshore Libra project in which it holds a 20 percent stake.
BG gives Shell an outlet for its natural gas reserves in Australia’s Queensland state. Shell and its partner PetroChina Co. have been looking at alternatives for their Arrow gas project after shelving plans to build an export terminal this year due to cost blowouts and slumping energy prices. BG’s $20 billion Queensland Curtis LNG development may provide a solution for the “stranded” Arrow assets, according to Neil Beveridge, an analyst at Sanford C. Bernstein in Hong Kong.
Shell and BG have complementary asset portfolios in the North Sea, making job cuts “possible,” according to William Hares, a Bloomberg Intelligence analyst. About 10,000 North Sea employees and contractors have lost their jobs since the price of oil began to fall last year. Shell, which employs about 2,400 across the North Sea, said March 26 that about 250 positions would go in Aberdeen, the Scottish city at the center of the U.K. oil and gas industry.
Shell has downscaled operations in South Africa, where it has applied for exploration licenses to explore the semi-desert Karoo region that may hold as much as 390 trillion cubic feet of shale gas. Local exploration resources have been adjusted as the company also awaits clarity on natural resource legislation, Shell said March 16.
Shell is backing plans for an LNG plant in Tanzania, according to Ahmed Salim, a Dubai-based analyst at Teneo Intelligence. BG has a 60 percent interest in three blocks off Tanzania and is involved with plans to develop an LNG plant.
The proposal by Shell and its Asian partners for an LNG export terminal on Canada’s Pacific Coast is “one of the best, well-planned” projects, according to TransCanada Corp. Chief Executive Officer Russ Girling. The Shell project is one of more than a dozen proposals to export chilled gas by tanker from Canada’s Pacific to Asia. BG is among proponents that have delayed final decisions on Canadian projects as slumping energy prices trim cash for producers.
Shell is set to make a final decision on the Kitimat LNG terminal by mid-2016, said Girling, whose TransCanada would build a gas pipeline to serve the facility.
Until now, Shell has had a limited stake in the emergence of the U.S. as an exporter of natural gas, with its only involvement being a 49 percent holding in a project to transform the Elba Island LNG terminal near Savannah, Georgia, into an export terminal. BG is producing gas in the Haynesville shale in Texas and in the Marcellus shale in Pennsylvania and West Virginia. The company has plans to export LNG from the U.S. from the Lake Charles facility in Louisiana.
The combined entity will be the largest producer of LNG among international oil companies, Shell Chief Executive Officer Ben van Beurden said on Wednesday. It would have delivered 45 million metric tons of LNG in 2014, including 11 million tons from BG, Shell said. Shell’s equity LNG capacity, at projects from Australia to Russia to Nigeria, was 25.6 million tons a year at the end of 2014, the CEO said. That’s set to rise 80 percent by 2018, including new production and BG’s assets. BG’s trading portfolio will help Shell develop its business buying and selling the fuel, said Malcolm Johnson, a faculty member of The Oxford Princeton Programme who spent more than 30 years with Shell in gas and LNG.