Rock-bottom energy prices are triggering their usual response from oil companies: A wave of tie-ups that make the biggest producers even bigger.
The latest example is Royal Dutch Shell (RDSA)’s bid for BG Group (BRGYY), a British firm with a stockpile of prized oil fields off the coast of Brazil, and lucrative natural gas holdings in Australia.
The companies announced the £47 billion ($70 billion) deal early Wednesday. It’s the biggest in the sector since Exxon (XOM) bought Mobil in 1998, according to Dealogic. Shell will pay a 50% premium to BG’s closing share price of £9.10 ($13.56) on Tuesday.
If completed, the purchase will add 25% to Shell’s oil and gas reserves and 20% to production. Shell also expects “synergies” of around $2.5 billion, raising the possibility of job cuts.
Shares in BG soared 38% in London, while Shell slipped nearly 6%.
With oil prices below $60 a barrel, Shell isn’t alone in its desire to get bigger. Oil services group Halliburton (HAL) recently shelled out $34.6 billion for Baker Hughes, and Spain’s Repsol spent more than $8 billion last year to buy a Canadian firm. A flurry of smaller deals have also been announced.
Including the Shell bid for BG, global M&A volume in the oil and gas industry stands at $112 billion so far this year, according to Dealogic. That’s nearly double the $61.4 billion registered over the same period in 2014.
When energy prices are high, oil companies are happy to just keep drilling. But when prices decline, producers often find themselves in a cost crunch, and weaker firms become attractive takeover targets.