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Shell takeover deal may face local resistance

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Article by Matt Chambers, published 3 June 2015 by The Australian Business Review under the headline:

Shell takeover deal may face local resistance

Australian regulators are shaping up as one of the major hurdles for Royal Dutch Shell’s friendly $91 billion takeover of BG Group, with analysts tipping coal-seam gas sales may be needed for Shell’s plan to create a world-dominating LNG business to get through.

Credit Suisse analysts said the transaction between the energy giants should clear regulators in Brazil, where Shell wants BG’s deepwater Santos Basin, and the European Union, where both companies are domiciled.

Instead, Australia and China will be the main hurdles, potentially with conflicting views on the best way to structure a deal for their respective national interests, the investment bank said yesterday.

The agreed takeover would mean Shell becomes the owner of BG’s Queensland Curtis LNG project at Gladstone, making the gas-short project a logical home for the undeveloped Arrow coal-seam gas project in Queensland, which Shell owns in a 50-50 joint venture with PetroChina.

“We expect no significant ­hurdles in Brazil, but both China and Australia are likely to come with greater scrutiny and uncertainty,” Credit Suisse said in a ­report by its energy analysts based in London, Singapore, Sydney and Brazil.

In Australia, the deal needs to be approved by both the Foreign Investment Review Board and the Australian Competition and Consumer Commission.

The focus here is likely to be on the potential merger of Arrow with QCLNG, which would tie up a large portion of uncontracted Queensland gas reserves and ­resources, and its impact on domestic gas supply.

“There probably is the potential for a case to be made for a ‘negotiated remedy’, where part of the reserves are sold off, either via an asset sale or contracted volumes,” Credit Suisse said.

The bank said Australian assets could also be the focus in China, where concerns are likely to centre on LNG concentration and China offsetting this by ­taking bigger stakes in production assets.

“A stake in a third train at QCLNG (where two production trains are now being built) for PetroChina could be possible,” Credit Suisse said.

But this might worry Australian regulators concerned about the implications for domestic supply. “A compromise could be that Royal Dutch Shell finds portfolio (uncontracted LNG) supply for PetroChina, which could be dressed up as equity molecules, via a share in Tanzania or another future project, but supplied by portfolio while waiting for the project to deliver LNG cargoes,” the bank said.

Shell is hoping to have the deal approved by regulators and BG shareholders by early next year.

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