Oil companies have had a terrific run over the past three years. But few have done as well as Britain’s BG. Its stock has nearly tripled thanks to the steep rise in energy prices and persistent takeover speculation. But holding out for that bid could entail a very long wait.
To see the problem, look at the most obvious buyer – Shell. Both are big in liquefied natural gas. BG has good short-term production prospects, but needs to boost its longer-term reserves. Shell is the opposite: it has strong long-term prospects but needs to boost its short-term reserves.
BG is valued at around $14 per barrel of reserves. Large oil firms such as Shell have to spend about $15 a barrel to find and develop their own. Shell could buy them more cheaply off the shelf by snapping up BG instead.
The trouble is, the maths don’t work. Even with a relatively slender 20 per cent premium, BG’s takeout price would be £27bn. Cost savings might be 3 per cent of that – comparable to other big oil mergers. Taxed and added to BG’s forecast profits of £1.6bn, Shell would earn about £2bn a year from the acquisition. That would yield a return on investment of 7.7 per cent – barely covering Shell’s cost of capital.
What is more, the premium is likely to be greater. After all, BG is a scarce asset, and companies have sold for more in recent resource sector deals. But at higher levels, BG is really of interest only to trophy buyers.
Despite a 13 per cent drop since April, BG’s shares still trade at almost 14 times earnings – a 44 per cent premium to its peers. That can be justified only by bid speculation.
On fundamentals it looks flaky. BG’s profits are coming under pressure as it cranks up capital expenditure. That will make the multiple look even more stretched.
BG’s shares are worth buying if you think energy prices will rocket, but the risks there are on the downside. Otherwise they look poor value. John Paul Rathbone
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/09/10/ccbreak10.xml
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Royal Dutch Shell conspired directly with Hitler, financed the Nazi Party, was anti-Semitic and sold out its own Dutch Jewish employees to the Nazis. Shell had a close relationship with the Nazis during and after the reign of Sir Henri Deterding, an ardent Nazi, and the founder and decades long leader of the Royal Dutch Shell Group. His burial ceremony, which had all the trappings of a state funeral, was held at his private estate in Mecklenburg, Germany. The spectacle (photographs below) included a funeral procession led by a horse drawn funeral hearse with senior Nazis officials and senior Royal Dutch Shell directors in attendance, Nazi salutes at the graveside, swastika banners on display and wreaths and personal tributes from Adolf Hitler and Reichsmarschall, Hermann Goring. Deterding was an honored associate and supporter of Hitler and a personal friend of Goring.
Deterding was the guest of Hitler during a four day summit meeting at Berchtesgaden. Sir Henri and Hitler both had ambitions on Russian oil fields. Only an honored personal guest would be rewarded with a private four day meeting at Hitler’s mountain top retreat.
IN JULY 2007, MR BILL CAMPBELL (ABOVE, A RETIRED GROUP AUDITOR OF SHELL INTERNATIONAL SENT AN EMAIL TO EVERY UK MP AND MEMBER OF THE HOUSE OF LORDS: 
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A head-cut image of Alfred Donovan (now deceased) appears courtesy of The Wall Street Journal.
