Sources: Shell Sees BG Deal Working With Oil at $50 for Two Years
LONDON, Jan 7 (Reuters) - Royal Dutch Shell has told investors its purchase of BG can work even if oil prices average $50 a barrel for two years, its lowest estimate to date as it seeks to secure shareholder support for the $51 billion deal amid plunging crude markets.
The Anglo-Dutch group is confident investors will back the deal at a Jan. 27 meeting, even though crude prices are languishing near 12 year lows around $32 a barrel and it faces a cut to its credit ratings due to higher debts, sources with knowledge of its meetings with analysts and investors said.
When Shell announced the deal in April 2015, with oil trading around $55 a barrel, many investors saw it as a bold move to buy a weakened rival on the expectation that prices would recover to around $90 per barrel within three years.
Initially, Shell indicated the combined group would be profitable with prices in the mid $70s a barrel. Last month, it said the merger would work in the low $60s, as it identified new synergies and cost cutting opportunities.
On Wednesday, finance chief Simon Henry told analysts Shell had conducted stress tests that showed it could withstand oil at $50 a barrel over the next two years, the sources told Reuters.
A Reuters poll on Monday showed analysts expect benchmark North Sea Brent crude futures to average $52.52 a barrel this year.
To weather such an environment, Shell plans to cut capital spending further below the planned $35 billion for 2016, delay share buybacks and extend scrip dividends, where investors are offered discounted shares instead of cash, Henry told analysts.
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Shell Mulls LNG-Hub Network as Use by Ships and Trucks Expands (Jul 11)
- Tanzania Laws Would Allow Govt to Tear Up Mining, Energy Deals (Jun 29)
- Despite Cuts, Big Oil to Expand Production into the 2020s (Sep 05)
Company: Royal Dutch Shell plc more info
- Shell Agrees to $1.9B Sell of Upstream Danish Assets to Noreco (Oct 17)
- Tight Oil, Shale to Drive Majors' Output to New Highs (Oct 16)
- Shell, Equinor Commit to Tanzania LNG as They Await Host Accord (Oct 16)