Australia: Shell pencils in $2bn in extra savings from BG Group merger

The merger with BG Group will save Shell an extra $1bn a year, the company has said, as it shores up its case for pressing ahead with the $70bn combination.

Reductions in operating costs plus a cut in the exploration budget would deliver savings of $3.5bn a year by 2018, a 40pc increase on previous estimates, Shell said.

The merger with Reading-based BG is expected to complete at the start of 2016 and Shell is hoping the deal with “springboard” it back to profitability. The merger will give it access to BG’s oilfields in Brazil as well as its expertise in producing liquid natural gas, a type of fuel that is converted from gas into liquid for transport.

At a management day for investors in London, Ben van Beurden, Shell’s chief executive, said that the BG merger would allow the Anglo-Dutch giant to “grow to simplify”.

“BG rejuvenates Shell’s by adding deep water and integrated gas positions that offer attractive returns and cash flow, with growth potential,” he said.

“These are industries where Shell has significant capabilities and technologies. With enhanced positions in both of these themes, Shell can… deliver a more structured and predictable investment programme.”

The merger with BG should help Shell boost cash flow, reduce its debts, and improve payouts to shareholders, including a $25bn share buyback in 2017-2020, Shell said, as it set out further details on how the cost savings would work.

The extra $1bn in savings will come from cost cutting in back office functions, marketing and shipping, which had already been expected to save $1bn a year.

Full content: The Financial Times

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