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BG-Shell takes first step towards Brazilian blessing

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The £47bn blockbuster deal has been officially filed with competition regulators in Brazil, a key hurdle and strategic area for Shell’s interest

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Shell’s £47bn plan to become the world’s biggest gas producer has moved a step closer to reality after the oil giant officially filed its takeover of BG Group with Brazilian competition regulators.

The second-biggest oil and gas deal ever on record still requires the blessing of a number of regulators across the world. Sources have already flagged potential hurdles could come from China’s notoriously opaque Ministry of Commerce (Mofcom) and Brazil’s beefed up authority, the Administrative Council of Economic Defence (CADE), as well as European regulators. The companies have indicated that they expect the deal to close by the first quarter of 2016.

Brazil is seen as key to Shell’s interest in BG with chief executive Ben van Beurden commenting that the enlarged group would be producing 550,000 barrels a day from Brazil by the end of this decade – four times more than Shell’s current production.

Mr van Beurden has also called Brazil “the most exciting area in the world for the oil industry”.

However, the deal will also make Shell the single largest foreign owner of Brazilian oil, raising concerns about the level of scrutiny the BG takeover will face from Sao Paolo regulators.

Wood Mackenzie, the industry consultants, has said that in ten years time Brazil will be the biggest country in the combined group’s portfolio.

Despite this sources have said they believe there are not significant competition concerns and have insisted that they do not need to offer remedies.

As a result of Shell’s confidence in a speedy approval process the two companies are understood to have already filed with regulators on 17 June. A CADE spokesman confirmed the filing.

Brazil only accounts for 10pc of Shell’s operations and the oil major only has drilling rights in the so-called Libra Basin, while BG has drilling rights in Lara, Sapinhoá, Lapa and the Lula (formerly Tupi) oil fields.

Barbara Rosenberg, of Sao Paolo based law firm BMA, said that the Brazilian regulatory timetable could run to 330 days in extreme circumstances but the average time for clearance since changes to the Brazilian competition law has been 31 days.

Following talks over the past two months with Brussels officials it is understood that BG and Shell are planning to file with the European Commission before the summer, when the majority of Brussels staff leave for their holidays. It is understood that the parties will be pushing for an early 30 day Phase I clearance.

Shell and BG are also yet to file with Mofcom although remain confident that the deal will be passed because of the large global markets. However, Chinese authorities are expected to scrutinise a dominance in the gas market.

“BG is a big supplier of gas to China and Mofcom will likely be concerned about the impact on imports of LNG into China and will look at the combined Shell portfolio into China”, Anna Howell, partner at Herbert Smith Freehills said. Glencore’s takeover of Xstrata took a year to gain clearance from Mofcom and required a copper mine being sold to a Chinese buyer. Last week the blockbuster deal received its first regulatory approval from the US Federal Trade Commission.

Shell’s chief executive said that the clearance was “a clear demonstration of the good progress we’re making on the deal”.

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