Shell deal for BG has many implications for Norway

There is still money to be made in oil & gas. Royal Dutch Shell (LSE: RDSA, RDSB Euronext: RDSA, RDSB NYSE: RDS.A, RDS.B) has agreed to bid 47 billion pounds (almost 65 billion Euros) in cash & shares in the combined company (383 pence in cash 0.4454 Shell B Shares) for British multinational oil and gas company BG Group (LSE: BG. OTCQX: BRGYY). The recommended deal represent a hefty premium at current prices for both companies, with yesterday's closes for both implicating a value of 1,350 pence per share in London. BG is up almost 40% to trade around 1250 in early action whereas Shell is down slightly.

Implications on the Norwegian Continental Shelf are also clear. BG Group has licenses in Norway and so does Shell. With the cash & 19% ownership in Shell for BG shareholders, you could say the valuation is attractive for a total increase of 25% in proven oil & gas reserves and 20% increase in production for Shell. Also the largest shareholder in BG Group is Government Pension Fund of Norway through Norges Bank Investment Management with just over 5% holding. The deal is thus another boon for it.

On the other hand consolidation can mean less activity. Annual synergies of 2.5 billion pounds have already been identified. Shell says the deal helps its growth particularly in Liquefied Natural Gas & deep water research with focus on Australia in LNG and Brazil for deep water. Clearly LNG is the major future focus area.

BG Group's Norwegian high-profile CEO Helge Lund, who has previously headed Statoil (OSE: STL) and Aker Kværner, now Aker Solutions (OSE: AKSO) only joined the company half a year ago. His future is now uncertain, with British media speculating he likely has no long-term role in Shell. He said he and his team will remain committed to BG Group during the time it takes to complete the transaction. Finnish former Nokia (OMXH: NOK1V, NYSE:NOK) head Jorma Ollila is Chairman of Shell. He said the result of the deal is a stronger and more competitive company in the volatile oil price world.

As seems to be the norm these days, market was starting to speculate on a bid beforehand, forcing an announcement last night. Advisors for BG Group were Goldman Sachs International and Robey Warshaw LLP while Shell was aided by Bank of America Merrill Lynch.