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Shell inks $70 billion deal as Big Oil gets even bigger


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.


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