More than six months have passed since Royal Dutch Shell announced its plans to purchase the energy exploration company BG Group, and the vote is still out as to whether investors will go for the merger.
Earlier this week, after Standard Investments said it would not support the deal and called the plan to purchase the British multinational seller of liquefied petroleum gas “value destructive,” the investment company reversed its stance and said it would support the merger.
Standard Investments, which owns stocks in both companies, is among the more prominent ‘wins’ of investor confidence by Shell in recent months. But many are still skeptical about Shell CEO Ben van Beurden’s assurance that oil prices are due to jump substantially in coming months, to the favor of Shell’s investment. It has until Jan. 27 to garner the interest of its various stakeholders.
“The oil prices we are seeing today are not sustainable and are going to settle at higher levels, and higher, in my mind, over the next few decades than the low $60s that we require to make this deal a good deal,” Van Beurden told the U.K.-based Sunday Times earlier this week. Oil prices are now at a more than 10-year low, far below the $60/barrel price van Beurden said would be necessary to make the deal worthwhile.
If Shell gets the go-ahead from investors, it says it would slash about 2,800 jobs once the merger is complete, to shore up costs. It also plans to sell about $30 billion in assets over the next few years — a reasonable step, analysts say, as it prepares to take on more of the liquefied petroleum gas (LPG) industry and deepwater exploration that BG Group has championed.
“Our industry has entered what could be a prolonged downturn,” said Shell Chairman Chad Holliday, in a written statement.
Some analysts see Shell’s effort to capture the LPG market as a smart move that will ultimately reduce risk in its current investments. Shell’s market value is dropping, an indication, in part, that its oil reserves are declining. Moving toward LPG investment, some analysts say, may raise its value as well as give new life to its brand.
Image credit: Mike Mozart
