Business World

Saturday 22 October 2016

Shell to cut 2,800 jobs once BG Group merger completes

Rebecca Burn Callander

Published 14/12/2015 | 11:44

Shell is free to drill into oil-bearing rock in the Arctic for the first time since 1991
Shell is free to drill into oil-bearing rock in the Arctic for the first time since 1991

Shell’s £40bn merger with BG Group is on track for completion in early 2016 after it cleared its final regulatory hurdle.

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The deal has been approved by the Chinese Ministry of Commerce (MOFCOM), following earlier success with regulators in Australia, the US, EU and Brazil.

Shell also confirmed that it expected 2,800 jobs – or around 3pc of the total workforce – to go from the combined company. This is in addition to plans already announced to cut Shell’s global headcount by 7,500.

BG Group, which is based in Reading and employs around 5,200 people, is also likely to lose its corporate offices as a result of the deal.

“Shell’s expectation is that BG’s business would be integrated into Shell's businesses. As part of that, Shell proposes that office consolidation will be undertaken where practical in certain locations around the world,” Shell said.

“With regards to office footprint rationalisation in the UK, Shell will, following deal completion, undertake a comprehensive review during the course of 2016.”

Shell will begin consulting with employees over the job losses.

The details come as Shell battles to convince investors its takeover of BG is still value for money.

The takeover, which will create Britain’s biggest public company, has been under mounting scrutiny in recent weeks as the City questions whether Shell can justify pushing ahead, with oil prices remaining so suppressed.

The price of crude collapsed last Monday after an acrimonious meeting of Opec, the oil exporters' cartel, and is currently trading at $37 a barrel.

Standard Life, a top 20 investor in both companies, warned today the deal did not make "financial sense" with oil prices so low. "I think Shell will come under pressure over the next few months to say how the deal is going to work," David Cumming, head of equities at the investment firm, told the BBC.

Last month Shell declared it could save around $3.5bn a year by 2018 by combining the two businesses - $1bn more than it had previously calculated.

Now the deal has the green light from China, shareholders at the two companies will decide whether the tie-up should go ahead. The merger still requires 50.1pc of Shell investors and 75pc of BG’s shareholders to vote in favour.

The combined Shell-BG group is set to become the biggest supplier of liquefied natural gas (LNG) to China after the merger.

The giant will supply around 30pc of China's LNG by 2017 and insiders had warned that the Chinese regulator could use this deal as an opportunity to sweeten long-term gas supply contracts.

There were also fears that China's "black box" review process would prove a major obstacle to the deal.

However, it is understood that Shell’s chief executive, Ben van Beurden, was able to meet the president of China’s ministry of commerce, Gao Hucheng, to discuss the deal.

"We’re grateful to MOFCOM for its thorough and professional review of the recommended combination, and I am delighted we now have all the pre-conditional approvals needed to move to the next important phase," Mr van Beurden said.

"This is a strategic deal that will make Shell a more profitable and resilient company in a world where oil and gas prices could remain lower for some time. We will now seek approval from both sets of shareholders as we move towards deal completion in early 2016."

"Following today's approval from MOFCOM, all pre-conditional regulatory approvals for the combination have been received and we now move to the next phase," added BG Group's chief executive, Helge Lund.

"I am pleased that we have continued to deliver a strong operating and safety performance throughout the offer period, which is a credit to our teams across the business.

"The proposed combination has strong industrial logic, particularly in deep water production and LNG, and will accelerate the delivery of value to our shareholders."

The takeover will enable Shell to fulfil Mr van Beurden’s ambitious growth targets and leapfrog its top US rival ExxonMobil to become the largest LNG producer in the world.


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