Royal Dutch Shell’s £47billion takeover of BG Group is undervalued in the City, according to Shell boss Ben van Beurden.
He has insisted the economics of the deal make perfect sense, even at the current low oil prices.
The comments from the Shell chief executive came during a lunch date with Iain Armstrong, oil and gas industry expert at wealth management group Brewin Dolphin.
Mr van Beurden said the market was focusing too much on a break-even cash flow point tipped at $70 per barrel.
But the true break-even level is much lower, thanks to the scale of savings likely to be achieved from the mega-merger, he added.
Mr van Beurden said he expected the deal, which was approved by the European Commission just this week, to generate cash in almost any oil price scenario.
But he also said the delay or cancellation of projects worth more than £130billion globally combined with naturally declining reserves were likely to push the long term oil price to around $70 a barrel.
Investors have become increasingly nervy about whether the cash and shares deal for BG is worth the price-tag.
The agreement valued BG at £13.50 a share but the firm’s stock is now worth less than £9.80.
Shell’s own shares have slumped in value since the takeover was announced in April and the Anglo-Dutch company has been working hard to convince the market of its rationale.
Few people would question the move from a strategic point of view as it gives Shell huge deepwater reserves in Brazil and also cements its position as the world’s largest liquefied natural gas supplier after Qatar.
Mr Van Beurden attributed the discount in the BG share price to a wider trend which hit global markets last month, when fears over global growth and US monetary tightening caused a vicious equity sell-off.
In his meeting with Mr Armstrong, the Shell boss also said he remained confident about the company – long seen as a cash cow for investors – continuing to pay dividends totalling nearly £8billion a year.
Capital expenditure cuts worth £4.6billion in 2015 and a £2.6billion reduction in operational spending over two years are expected to cover the bulk of the payout to shareholders, while a new “joint venture integration office” has apparently identified further potential merger savings.
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