BG Group Share Discussion Threads

[whiskeyinthejar] 18/1/2016 21:42

Mavis, do you have an opinion on Brazil? How do they leverage scale? Shell and Bg both have interests there, but different fields. Is it better to leave it like that to spread risk? I'm guessing Shell will sell Egyptian and other assets when poo rises again, but think they might try to pick up more assets in Brazil as Petronas is over stretched. I'm grateful for any reply.

[zyzzyva] 18/1/2016 18:33

all deals have a maximum value that they would work at, though everyone will have their own opinion on what that is. what price would the deal be at if it was announced as at today? certainly not $70bn. that theoretical price might be just 300p a share plus the $10bn net debt. E&P assets have crashed and the Brazilian assets only have option value. check out the trouble Petrobras is in.

the BG share price is an illusion, as it is tied to the deal terms. what would the BG share price be now if no deal had been announced. someone posted that the last time oil prices were at this level, BG was at 280p. that matches my thinking that BG could fall to £2 if the deal was pulled.

[zyzzyva] 18/1/2016 17:41

mavis5 thanks for your post.

what is "long -term"? imo it irrelevant and the deal does not make any sense.

imo the shell management is being disingenuous. when the deal was announced the oil price was $60 and they argued the deal made sense if oil returned to $70, though of course its not really about oil prices (LOL!). then when oil price fell, they happened to find some more cost savings and said that it would now make sense at $60 oil price. but oil has slumped to $28 and is going lower still!

this is about opportunity cost. the deal pricing was set 9 months ago when energy prices were more than double current levels, and asset prices have crumbled since then. so they could buy much more for that £41bn now. i am sure there are other potential targets for them like Anadarko or Occidental.

[mavis5] 18/1/2016 16:49

Zyzzyva -

I have worked in the oil industry for 30 years, starting at Shell and later at BG (with 7 years at BP in the middle). Given their respective portfolios, amongst other things,I would argue that the deal makes great industrial sense for both companies.

You refer to long term investors - long term is where the deal will unlock huge value for Shell (and hence why the Shell Board argue so strongly for it).

[zyzzyva] 18/1/2016 11:45

this was back in December when the oil price was 25% higher



Originally the deal looked like no-brainer. It would end the governance and scale problems for BG and give Shell access to its reserves, saving Europe’s largest oil company the huge capital costs of exploration in the Arctic, Canada and elsewhere.

The economics looked good with the oil price at the $60-a-barrel level and forecasts it would rise back to $70 by the time the deal – which awaited overseas approvals – was done.

That all turns out to be pie in the sky. The price of Brent crude has tanked and in Christmas Eve trading stood at $37.50, down 75 per cent on the price 18 months ago.

Then there is the dividend. Shell says that the accretive value of the BG deal means it will at the very least be able to hold the pay-out despite the problems in the wholesale market. Given, however, that all the calculations are based on oil returning to $60-a-barrel this is not a very bankable pledge.

The Shell-BG deal no longer makes economic, investor or industrial sense and should be rejected by long term investors. It is too important to let hedge funds and other latecomers on the share register decide.

[pvee] 17/1/2016 21:53

Thanks, Zorija

[zorija] 17/1/2016 20:32

pvee,
see the RDSB thread for the difference between them. If you are based in UK then 'B' would be more tax efficient imo...
ZZZ

[zyzzyva] 17/1/2016 19:40

with the oil price slumping it might be worth considering selling in the market just in case the deal is not completed. BG trading update this week - might not look very good, see the poor Q3 results.

[pvee] 17/1/2016 18:58

As a BG holder I'm increasingly convinced to take the all shares deal but which ones : A or B ?

Thanks

[zyzzyva] 16/1/2016 23:48

oil prices are not going to bounce back. world economies are slowing down and the iranians are about to dump 600,000 more barrels a day into the market.

hxxp://www.thesundaytimes.co.uk/sto/business/business_interviews/article1656830.ece

[zyzzyva] 16/1/2016 10:02

imo shell are paying up to £20 billion too much for BG. imo if the called off the bid RDSB would jump 15-20%, while if the go ahead RDSB will fall 5-10%. imo they could wait a year and buy BG for £4 to £5.

[zyzzyva] 16/1/2016 10:00

the oil price slump has decimated the value of E&P assets. high production cost assets like BGs Brazilian offshore assets are only worth option value.

[84stewart] 16/1/2016 08:16

Before deal BG was £9 then rose briefly. The take over price equated to £13.50 per share

[zyzzyva] 15/1/2016 22:13

all very well but you cannot over pay for assets. E&P shares have slumped since the deal was announced, eg TLW is down 70% since late april.

[whiskeyinthejar] 15/1/2016 21:57

He talked about the oil price because he was asked! Its going to come up isn't it!

But article is clear - he said merger is “not a bet on the oil price”.

Going back to your other comment- I'm not spinning it I'm putting it simply.

You or Spob or whoever can disagree or put me right, but I don't think I've written anything unreasonable.

The Oz Gas facilities are an asset which I say is worth £13 Billion because that's the facilities cost to build. You don't have to agree they are worth that, but if you don't have a reason to disagree then you've lost the argument.

I actually suggest the Oz Gas LNG facilities are worth more to Shell, because Shell can use them to develop their current Oz assets.

Anyway, the remainder of bid is new Shell shares in return for the existing BG shares. So Shell shareholders get diluted by 20%, which in return Shell increases proven reserves by 25% and increases in production by 20%. Again you can say, actually Shell has refinery assets etc. so exchange is unfair. Or you can say BG are increasing production exponentially and gas is more valuable than oil, so deal undervalues BG. That's your call, but in terms of exchanging dilution for bg reserves thats the deal simply put.

However, if this deal wasn't happening, because BG is moving from investment phase to more of a production phase, BG share price would imo outperform Shell and the sector over the next year.

Oz Gas project is now on stream and ramping up, Brazil has ramped up production and so unlike last few years BG have free cash flow. Depending on prices this ought to mean a growing dividend.

Anyway, BG shareprice has fell from over £15 to £9 because Oz project overran, all the cash generated was being soaked into the massive gas project and pessimism over gas price. Pessimism over gas persists, but project is complete now, so Shell are are getting BG rather cheaply imo.

But you don't get to buy a premium company without paying a premium to current shareprice. That shouldn't concern Shell holders however, as BG is obviously worth more as part of Shell than as a standalone company because of synergies and risks being spread (Shell identified $3.5 billion of cost saving synergies etc.)

[zyzzyva] 15/1/2016 21:53

i certainly did read the articles. it was all very well to talk tough when the oil price was $60 and $50. it is now sub $30 and probably heading lower. of course the oil price is relevant to the deal, hence why they talk about it and why they outline their plans to justify the deal in relation to the oil price

[whiskeyinthejar] 15/1/2016 21:43

You didn't read the article you quoted did you?

He says two things.

1. Oil price irrelevant to BG deal.

2. Then he talks about the oil price and where he sees it going.

Quote:

"van Beurden stressed heavily that the merger was “not a bet on the oil price”. While answering questions he laid out his – and Shell’s – view for the future of oil prices."

Its not the BG deal that he's saying needs $70, its the oil industry.

So article is clear. He says merger is
“not a bet on the oil price”

[zyzzyva] 15/1/2016 20:06

but the oil price is now just $29 !

[zyzzyva] 15/1/2016 20:03

then by early November when the oil price had fallen to around $50 they said -



Royal Dutch Shell on Tuesday again sought to assuage investor concerns over its planned $70 billion takeover of BG Group as it announced plans for further synergies and cost cuts aimed at making the deal work with oil prices in the mid-$60s a barrel.

[zyzzyva] 15/1/2016 20:00

when they announced the deal in April, with oil price around $60, they said -

hxxp://www.scottishenergynews.com/industry-needs-crude-oil-price-of-70-barrel-says-shell-chief-after-mega-merger-with-bg-group/

Shell Chief Executive Ben van Beurden has declared that within a decade crude oil prices will have to rise to “at least $70-barrel in order to just break even”.

[zyzzyva] 15/1/2016 19:35

that is a nice way to spin it. sure, they would be nice assets to get hold of, at the right price. but the fact is the oil price has halved and there is no guarantee it will recover anytime soon. what would BG shares be if the there was no bid? what is the fair value of BG assets? if shell pays a premium to the fair value of assets then as far as i am aware that difference will have to be written off. imo that fair value premium could be as much as £15 billion to 20 billion.

[whiskeyinthejar] 15/1/2016 19:04

Oil price today, tomorrow, next week is irrelevant.

More relevant is average prices over next decade.

But the deal is good at any oil price imo.

With the £13 Billion cash element, Shell gets the Australian LNG facilities BG spent £13 billion and many years building.These can also be used to help bring Shell's existing undeveloped Australian gas assets to market.

The deal essentially is BG shareholders get new Shell shares (which have a value based on oil and gas prices) in return for their BG shares (which have a value based on the same oil and gas prices). So oil and gas prices going up and down are mostly irrelevant to whether deal is a good one.

And the dilution is 20%, which in return Shell get to increase proven reserves by 25% and increase production by 20%.


On top of this, Shell has identified $3.5 billion of cost saving synergies and assert themselves as world's no 1 provider of LNG.

[zyzzyva] 15/1/2016 18:29

shell could be paying £15bn more than fair value. that could mean a £15 to £20bn writedown immediately after the acquisition. imo the dividend would definitely not be sustainable

[zyzzyva] 15/1/2016 18:26

have you already posted the forms? what if the oil price keeps falling? BG were 800p back in April before the bid. so with the oil price halved it might be worth less than 300p if the deal falls through. see other producers share prices - PMO is down 90% since early May.

[mavis5] 15/1/2016 18:12

Several institutional advisers (ISS, Glass Lewis and now Pirco) all recommending clients to vote for the deal. I've got Shell shares and have voted for it - like them, I'm in it for the long term.