Shell has attempted to calm investor jitters over its proposed £55billion takeover of BG Group by saying it expects to save billions of dollars by cutting costs once the deal goes through.
The Financial Times reported that Shell will take advantage of the enlarged company’s scale to slash costs in its deepwater oil business and natural gas trading arm.
The Anglo-Dutch giant has reacted to a 13% fall in its share price since the BG takeover was announced in April, with chief financial officer Simon Henry highlighting the massive cost savings, which he described as “value synergies”.
Mr Henry is believed to have told a group of London-based investors and analysts that the enlarged group’s Brazilian deepwater portfolio and its combined LNG trading and marketing operations would lead to economies of scale. These would relate to lower procurement and supplier costs in Brazil and savings on shipping and logistics.
Henry told investors and analysts these are likely to be “a multiple” of the $1bn in annual projected savings from merging head offices and other cost-cutting.
The FT also said Ben van Beurden, Shell’s chief executive, was likely to use the company’s interim results on July 30 to outline a substantial cut to this year’s capital investment.
Since the takeover, concerns were voiced that Shell needs oil prices of $90 a barrel for the deal to work. However, Mr Henry is reported to have said the deal worked at $70 per barrel.
The BG deal gives Shell large deepwater Brazilian reserves and cements its position as the world’s biggest supplier of liquefied natural gas, after Qatar.
Takeover rules dictate Shell can only set out initial cost reductions from eliminating clear duplication in areas such as headquarters, IT and human resources.
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