BG Group Plc has confirmed it is in advanced discussions to sell itself to Royal Dutch Shell Plc. It would be the largest energy deal this year.
Buying BG would also be Shell's largest acquisition since the $60.3-billion (U.S.) merger of its Dutch and U.K. parent companies in 2005, according to data compiled by Bloomberg. It would unite the U.K.'s first- and third-largest natural gas producers.
BG, which is worth $46-billion, said in a statement on Tuesday it was in advanced discussions regarding a possible offer by Shell, whose market capitalization is $202-billion. Exxon is worth $360-billion.
"There can be no certainty that any offer will ultimately be made for BG," BG said in a statement, adding that Shell must announce a firm intention to make an offer by May 5, or announce that it does not intend to make an offer.
Discussions were first reported by the Wall Street Journal, citing sources familiar with the matter.
BG posted a record $5-billion loss in the fourth quarter, mainly due to writing down the value of its Australian assets as commodity prices fell. Helge Lund took over as chief executive officer of the Berkshire-based company two months ago, starting three weeks earlier than planned after Norway's Statoil ASA agreed to release him from his contract.
Shell, Europe's largest oil producer, operates in more than 70 countries with 94,000 employees. Its shares have declined 5.5 per cent in the past year, while Brent crude prices have dropped 45 per cent.
BG Group was formed in 1997 as an offshoot of the U.K.'s state-owned utility. The Hague-based Shell had $21.6-billion in cash and near-cash items at the end of last year.
BG shares have slumped 20 per cent in the past year. They gained 6.7 per cent to 910.4 pence in London Tuesday.
Shell, which invented the oil tanker in the 1890s to haul Caspian Sea crude to European markets, will swell its reserves of untapped oil and natural gas by 28 per cent with the addition of BG's assets, according to data compiled by Bloomberg.
Shell is struggling to reverse years of slumping output from its wells. Its worldwide production dropped to the equivalent of 3.08 million barrels a day in 2014, the lowest in at least 17 years. Reserves, a metric that investors watch to assess future growth prospects, have declined in two of the past three years.
In contrast, BG boosted reserves in six of the past seven years. Its reserves were 78 per cent gas as of Dec. 31, compared with 47 per cent for Shell.
With a file from Reuters