Royal Dutch Shell announced yesterday that it has agreed to buy BG Group for £47bn (€64bn) in the first oil super-merger in a decade.
Anglo-Dutch Shell will pay a mix of cash and shares that values each BG share at around 1,350p, the companies said.
This is a large premium of around 52pc to the 90-day trading average for BG, setting the bar high for any potential counter-bid by a company like Exxon, which has said it would also use the oil markets downturn to expand.
BG Group's new chief executive, Helge Lund, who joined the company in early February, will leave once the deal goes through next year.
The deal will create a company worth more than £200bn. It will be the biggest transaction this year and the fourth largest oil and gas deal globally since 1996. There has been widespread speculation that BG would become a takeover target, with many City oil experts predicting Exxon would make a move on the British business.
It comes after oil prices halved since last June, putting a premium on access to proven assets rather than costly exploration. Record low interest rates have made it easy to raise cheap funding for big corporate deals.
The deal was put together by Shell chief executive Ben van Beurden, who took over the position last year, and BG chairman Andrew Gould, a veteran executive who previously ran oil services giant Schlumberger.
Mr Van Beurden said: "I called Andrew up and we had a very good and constructive discussion about the idea and it very quickly seemed to make sense to both of us.
"What has happened in last month, apart from it being a logical deal it has also become a very compelling deal from a value perspective."
He added: "We have been scanning quite a few opportunities, with BG always being at the top of the list of the prospects to combine with.
"We have two very strong portfolios combining globally in deep water and integrated gas."
BG's share price soared 42pc to £13 on the news, while Shell shares fell 4pc to £21.16. Shares in other energy stocks rose, with rival BP climbing 4.3pc to 475p amid speculation that it could become the next target.
BG had a market capitalization of $46bn as of Tuesday's market close, Shell was worth $202bn while Exxon, the world's largest energy company by market value, was worth $360bn.
Mr van Beurden said the combined business will sell off £20bn of assets (from both portfolios) between 2016 and 2018, most of which will be returned to investors via a £17bn share buyback.
Shell said the deal would create pretax cost savings of about £1.7bn a year. It will add some 25pc to the company's proved oil and gas reserves and 20pc to production.
The deal, which should generate pre-tax synergies of around £2.5bn per year, will result in BG shareholders owning around 19pc of the combined group.
The sale will bring Shell assets in countries such as Brazil, East Africa, and Australia, including some of the world's most ambitious liquefied natural gas (LNG) projects.
Shell is already the world's leading LNG company and it would get BG's capacity in LNG logistics. This includes infrastructure such as terminals, pipelines, specialised tankers, rigs and super coolers.