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.
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On Tuesday, Shell said its deal with BG still makes sense, despite increasing pessimism among the world’s largest energy companies and investment banks over the speed at which crude oil prices are likely to recover from their current level below $50 a barrel.
All of these cost-cutting measures essentially mean the break-even point of the BG Group deal has fallen from the $70-a-barrel range to the $60-a-barrel range, more in line with market expectations for the price of Brent crude in the future.
“We are laying a platform for a fundamentally better company for the future in any oil price environment”, Mr. van Beurden said as the company unveiled a strategy update Tuesday.
The price of oil was about $58 a barrel on the day the deal was announced.
The boards of both companies had recommended that shareholders approve the deal.
BMO rates Shell as “underperform”.
The BG purchase “was deliberately structured to allow for volatility or variability in the oil price during the period when the deal was open and to provide a bit of a hedge against volatility in the oil price”, said Chief Financial Officer Simon Henry.
The cuts would mean more job losses on top of the 7,500 in layoffs Shell announced this year, but officials declined to say how many jobs would be affected or lost. The combined group’s capital spending is expected to reach US$35 billion next year.
Shell reiterated plans to sell $50 billion worth of assets between 2014 and 2018 partly to cover the cost of the acquisition.
It said it would maintain its dividend payout in 2015 and 2016 at $1.88 per share, turn off scrip dividends in 2017 and undertake a share buyback of at least $25 billion in 2017-2020. The implementation of the cost savings will however result in a one-off charge of $1.23 billion. The company is targeting $11 billion of total cost savings this year, including a 10% reduction in operating costs and 20% lower capital spending, according to the statement.
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Shell is still going ahead with the acquisition of British gas company BG for 64 billion euros.
