Shell pushes ahead with $47bn BG deal despite plummeting oil prices

Shares in Shell fell by nearly 7% amid fears for the outlook for oil and concern among some investors about the wisdom of a huge deal in such a tough climate

Shell, which abandoned exploring for oil in the Alaskan Arctic last year, said that the deal with BG would reduce costs (Alamy)

The chief executive of Shell insisted that its $47bn (£33bn) takeover of rival BG would still be completed despite warning that falling oil prices halved Shell’s profits last year.

Ben van Beurden said that Shell had a bright future, in spite of the profits slump, and he was confident shareholders would approve a transformational deal with BG next week that would herald a “new chapter” for the company.

Shell forecast that fourth-quarter profits would come in at between $1.6bn and $1.9bn – compared with $3.3bn a year earlier, in an update ahead of its official results announcement on 4 February.

Full-year results will be between $10.4bn and $10.7bn, down from $22.6bn in 2014, as rising supply from soaring US shale production and a slowdown in global demand as the Chinese and Brazilian economies run out of steam pushed down the oil price.

A barrel of Brent crude has fallen from $115 in June 2014 to $28, and analysts fear it could drop as low as $10 later this year after sanctions on Iran were lifted at the weekend, which paves the way for the country to flood the market with oil.

BG also reported preliminary results on Wednesday. Like Shell, it also suffered from falling hydrocarbon prices, which are forecast to have reduced its profits by more than half – from $4bn in 2014 to about $1.7bn last year.

But BG also said it expected 2015 production volumes to have hit 704,000 barrels of oil equivalent per day, above its earlier forecasts, thanks to finds in Australia, Brazil and Norway coming on stream. BG’s Brazilian assets are considered a big prize for Shell from the takeover.

Shares in Shell fell by nearly 7 per cent to 1,277p amid fears for the outlook for oil, which dipped by another 2 per cent, and concern among some investors about the wisdom of a huge deal with BG in such a tough climate. BG shares dropped 4.5 per cent to 897p.

But Mr van Beurden said the deal still made sense – a view backed by Shell’s fifth-biggest investor, the Norwegian sovereign wealth fund Norges, which came out in support of the merger. It argued that companies should stick together in tough times.

“In an environment of low oil price, we believe the companies will stand together stronger. [The deal] accelerates value for BG Group shareholders and is in the best long-term interest of Royal Dutch shareholders,” said a spokesman for Norges, which is also the second-biggest investor in BG.

Shell investors will vote on the deal next Wednesday and BG shareholders will vote the following day.

Mr van Beurden praised Shell’s performance over the past year, saying cost-cutting had left it in good shape to weather the low oil price.

“I am pleased with Shell’s operating performance in 2015 and the momentum in the company to reduce costs and to improve competitiveness,” he added. “Bold, strategic moves shape our industry. The completion of the BG transaction, which we are expecting in a matter of weeks, will mark the start of a new chapter in Shell to rejuvenate the company and improve shareholder returns.”

Shell confirmed that cost-cuts would include 10,000 jobs going across the two companies, and said it was taking about $7bn of write-downs, much of which came from markdowns in the value of its oil assets in the new low-price environment. Earlier this week it scrapped plans for the joint development of a $10bn gasfield in Abu Dhabi.

Shell and BG are the first of the big oil companies to announce their results for 2015. BP will announce its profits on 2 February.