LON­DON–Oil and gas com­pa­ny Shell has agreed to buy British ri­val BG Group for �47 bil­lion (US$69.7 bil­lion), in a deal that may sig­nal a new wave of mega-merg­ers as the en­er­gy in­dus­try tries to adapt to low­er prices.

Roy­al Dutch Shell said yes­ter­day it will pay the equiv­a­lent of �13.67 in cash and stock for each share of BG Group, 50 per cent more than Tues­day's clos­ing price. The deal will boost Shell's oil and gas re­serves by 25 per cent, in­clud­ing off­shore projects in Aus­tralia and Brazil, and give it a big­ger pres­ence in the fast-grow­ing liq­ue­fied nat­ur­al gas (LNG) mar­ket, Shell said.

Oth­er en­er­gy gi­ants may fol­low suit as they look to boost growth through ac­qui­si­tions af­ter in­creased pro­duc­tion in the US helped trig­ger a plunge in oil prices. The last wave of oil merg­ers took place in the 1990s af­ter new pro­duc­tion from the North Sea, Alas­ka and Mex­i­co led to ex­cess glob­al ca­pac­i­ty and com­pa­nies linked up to pro­tect them­selves, or bought weak­er ri­vals at low­er prices.

"Will this be the open­ing shot in a new wave of mega-merg­ers like the 1990s?" asked Chris­t­ian Stadler, as­so­ciate pro­fes­sor of strate­gic man­age­ment at War­wick Busi­ness School in Britain. "Quite a few oil com­pa­nies are un­der cost pres­sure with no sense of the oil price re­cov­er­ing. Com­pa­nies had got used to US$100 a bar­rel, and many need US$40 to US$60 to break even so we could see more of these deals."

The in­ter­na­tion­al price of crude oil has plunged from over US$115 a bar­rel last sum­mer to a low around US$45 be­fore re­cov­er­ing some­what in re­cent weeks to trade at US$58 a bar­rel on Wednes­day. Glob­al nat­ur­al gas prices have al­so dropped, be­cause most of the nat­ur­al gas trad­ed in­ter­na­tion­al­ly is linked to the price of oil.

An­a­lysts at Wood Macken­zie say low prices have prompt­ed most ma­jor oil com­pa­nies to weigh ac­qui­si­tions, though on­ly a few have the size and re­sources to pull off a mega-merg­er. "If you're look­ing to the next big deal, Exxon­Mo­bil stands out as most like­ly to pull the trig­ger," they wrote in a re­search note.Exxon made the last gi­ant oil and gas ac­qui­si­tion when it agreed to buy the US shale driller XTO En­er­gy for US$31 bil­lion in 2009.

The takeover of BG Group al­lows Shell to re­place re­serves at a time when ex­plo­ration bud­gets are be­ing cut and af­ter its at­tempts to join the US shale boom did not amount to much, Stadler said.Wood Macken­zie said BG's large po­si­tion in the deep wa­ters off of Brazil were like­ly the most at­trac­tive tar­get for Shell. "It's all about the deep­wa­ter oil," an­a­lysts wrote.

The merg­er al­so com­bines the two largest in­vestor-owned sell­ers of liq­ue­fied nat­ur­al gas in the world. As new projects come on line in the com­ing years, the com­bined com­pa­ny will be­come the world's biggest sell­er of liq­ue­fied nat­ur­al gas by 2018, Wood Macken­zie said.The boards of both com­pa­nies rec­om­mend­ed that share­hold­ers ap­prove the deal, which they say will cre­ate a more com­pet­i­tive, stronger com­pa­ny amid the volatil­i­ty in oil prices.

Share­hold­ers seemed to think that Shell did not get much of a dis­count for BG, how­ev­er, de­spite the low oil and gas prices. Shares in Shell were down about 7 per cent Wednes­day while those in BG Group soared 32 per cent.BG share­hold­ers will own about 19 per cent of Shell af­ter the deal is com­plete.Com­bin­ing the two com­pa­nies will pro­duce sav­ings of about �2.5 bil­lion a year, Shell said.

"This an in­cred­i­bly ex­cit­ing mo­ment for Shell," chief ex­ec­u­tive Ben van Beur­den told re­porters. "It is bold and strate­gic moves that shape our in­dus­try."BG's Nor­we­gian CEO Helge Lund was con­spic­u­ous­ly ab­sent from Wednes­day's press con­fer­ence. Or­gan­is­ers said he re­mained at BG head­quar­ters in Read­ing–a two-hour dri­ve from Lon­don–to han­dle in­ter­nal com­mu­ni­ca­tion with the com­pa­ny's work­force. He will stay with BG on­ly un­til the deal is com­plet­ed.He said in a state­ment that BG would ben­e­fit from the takeover.

"BG's deep wa­ter po­si­tions and strengths in ex­plo­ration, liq­ue­fac­tion, and LNG ship­ping and mar­ket­ing will com­bine well with Shell's scale, de­vel­op­ment ex­per­tise and fi­nan­cial strength," he said.

AP