Shell, With $70B Deal For BG Group, Becomes World LNG Giant – Forbes

Royal Dutch Shell is making a smart move in its $ 70 billion acquisition of BG Group. The deal will gain Shell access to the most exciting deepwater oil projects in the world, in Brazil. While adding in BG Group's fast-growing liquefied natural gas business will soon make Shell the undisputed world leader in LNG. The combination will set Shell on the path to unseat Exxon Mobil as the world's biggest oil company.

"We have been scanning quite a few opportunities, with BG always being at the top of the list of the prospects to combine with," said Shell CEO Ben Van Beurden on a conference call this morning. "We have two very strong portfolios combining globally in deep water and integrated gas".

Shell is arguably the most global of the global oil supermajors, its strengths best utilized in managing large scale megaprojects. This deal for BG's collection of far-flung assets in Australia, East Africa, Brazil, Egypt and Tanzania reemphasizes that.

Ben van Beurden, CEO of Royal Dutch Shell, left, shakes hands with the Chairman GB group Andrew Gould during a press conference to announce Royal Dutch Shell has agreed to buy British Gas, in London, Wednesday, April 8, 2015. Royal Dutch Shell has agreed to buy British gas producer BG Group for 47 billion pounds ($ 69.7 billion) in cash and stock, the companies announced Wednesday. (AP Photo/Alastair Grant)

This deal is also what analysts at Tudor, Pickering & Holt describe this morning as "a conscious decision to de-emphasize U.S. shale and to stick to its strengths" in LNG and deepwater. Shell tried and failed in recent years to make a go of it in the booming shale plays of the United States, where being cheap and nimble matters. For much of the last two years Shell even lost money on its onshore U.S. business, and recently exited big acreage positions in the Eagle Ford and Haynesville. (See: "What The Hell, Shell?" for more.)

Though Shell has effectively thrown up its hands and given up on pursuing U.S. shale, with this one deal the company could solve some of its more lingering problems.

First off, it will fix its declining reserves problem by adding 4 billion barrels of proved oil and natural gas. Bernstein Research analyst Oswald Clint pointed out in a note today that Shell was paying the most among the majors to replace its reserves.

Second, Shell will solve its growth problem. BG is currently producing more than 600,000 barrels per day of oil and natural gas equivalents. With big LNG projects coming on line in Australia and elsewhere, and with development underway in Brazil, that output will likely grow to 800,000 bpd in 2016 and more than 1 million bpd by 2020.