Shell/BG will not be the harbinger of more LNG M&A
The recent proposed $70 billion purchase of BG Group (ticker: BG) by Royal Dutch Shell (ticker: RDSA) will make the industry’s liquefied natural gas giant even bigger. Shell already had liquefaction capacity of 26 million tons per annum (mtpa) at year-end 2014, according to a report from Pavel Molchanov at Raymond James. With the addition of BG’s 7 mtpa, Shell will now have 33 mtpa of liquefaction capacity, more twice that of ExxonMobil (ticker: XOM).
The announcement of the deal ignited talks of a wave of new LNG M&A activity that could start up following the announcement of the megadeal, but it does not appear that the Shell/BG deal will start a buying boom. “The big picture here is that corporate M&A involving E&P companies has been notably slow over the past several years,” Pavel Molchanov with Raymond James Equity Research told Oil & Gas 360.
“To be clear,” said Molchanov, “we don’t look at Shell/BG as the harbinger of a megadeal boom.” Molchanov says that buyers and sellers cannot come to an agreement on prices, with the bid/ask spread remaining too wide for companies to make a deal. Shell bet on the high end of the spread by offering a 50% premium to lock down its former LNG competitor.
Molchanov’s views are shared by other experts as well. Ethan Bellamy, Senior Analyst with Baird Energy Research said he also does not expect the $70 billion deal to set of wave of M&A in the LNG sector. “It appears Shell has been looking at BG for a long time, and relative equity price likely drove the trade… I think this more of a stock market opportunity, like Energy Transfer/Regency, than an LNG market phenomenon.”
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