Shell agrees deal to buy BG Group

Royal Dutch Shell is set to purchase BG Group for £47 billion.

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By :  ,  Financial Analyst

Royal Dutch Shell has announced it has agreed a deal to purchase oil and gas exploration firm BG Group.

The deal is valued at around £47 billion and will be delivered on a cash and share offer. It means investors will receive a 50 per cent premium of BG Group's share price as of April 7th. The agreement has been touted as the biggest merger between energy companies in over a decade and will be one of the largest in any sector in 2015 thus far.

Announcing this deal had differing fortunes for the respective companies' share prices. BG Group recorded a 37.31 per cent surge to 1,250.09 as of 08:56 BST on Wednesday (April 8th). It was a different story for Royal Dutch Shell which saw its share price fall by 5.75 per cent during the same period.

Both Shell and BG Group explained that the merger could produce a company with a value of over £200 billion. It will build on the £177 billion market capitalisation held by Shell, a significant increase on the £31 billion which BG controls. The latter was hampered by a 20 per cent fall in share price in the past 12 months.

Commenting on the importance of the deal for Shell, the company's chairman Jorma Ollila said: "The result will be a more competitive, stronger company for both sets of shareholders in today’s volatile oil price world.”

Reduction in investment

In January, Shell announced that it would be reducing its investment programme by $15 billion (£9.9 billion). It will be phased in over the next three years and is a reaction to the tumbling oil prices which have been putting an increased amount of pressure on oil and gas firms across the globe.

However, Shell confirmed that it would be resuming its drilling operations in the Arctic despite major objections from environmentalists such as Greenpeace.

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