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Shell boss confident of ‘good’ ruling from ACCC on BG takeover

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Angela Macdonald-Smith: 30 October 2015

Royal Dutch Shell’s global chief executive Ben van Beurden says there is “massive support” from Australian federal and state governments for the oil giant’s $US70 billion ($98.6 billion) takeover of BG Group and is confident the national competition regulator will wave the deal through.

Mr van Beurden said even though the decision from the Australian Competition and Consumer Commission on the deal had been put back twice, he was “confident that they will come back with a good and prudent ruling”.

He was in Canberra in early October for discussions on the deal, which would have its biggest Australian impact in Queensland, where Shell would take over BG’s LNG export project and could merge it with its Arrow gas joint venture with PetroChina.

“I think we are in a very good and productive discussion with ACCC. I would not want to comment or get ahead of things. I think it is for the ACCC to decide what they need to do, but on the basis of the discussions that we are having I am confident that they will come back with a good and prudent ruling,” Mr van Beurden said in a media teleconference for the company’s third-quarter results.

“Two weeks ago I spent a few days in Australia to speak with many of our stakeholders there in government, both federal as well as in Queensland, and the only thing I can say is there is a massive support and understanding for the project, from all quarters, from both sides of the political spectrum and from many other commentators, so I remain very confident that this will just play out as it should.”

Potential impact of takeover

The ACCC raised concerns in September about the potential impact of the takeover on gas supply for east coast buyers and many industrial gas users are known to have voiced their worries to the regulator.

A decision from the ACCC is due to be announced on November 19, while regulatory approval for the deal is also outstanding in China.

The comments came as Shell announced a $US6 billion loss in the third quarter, dragged down by $US7.9 billion of charges, mostly because of writedowns on lower assumptions on oil and gas prices and cancelled projects in Alaska and Canada.The loss has heightened worries about the economics of the BG takeover, which is to be 70 per cent paid for in equity and 30 per cent in cash.

The deal was worth $US70 billion when it was announced earlier in 2015, but now it was worth in the low $US60 billions, chief financial officer Simon Henry said. He noted that the fact it was partly being paid for by equity provided a “natural hedge” on the deal.

The slump in oil prices has raised questions on the profitability of the proposed Browse floating LNG venture, where Shell is working alongside venture operator Woodside Petroleum.

Preliminary work continuing

Mr van Beurden said work on preliminary engineering and design, known as FEED, for Browse was continuing, with the focus on driving down costs.

“We are working our way through the FEED process now … to see how we can bring this project away to a good economic proposition,” he said.

The Browse partners are targeting a final investment decision on the project in the second half of 2016.

The Shell executives were asked whether some of the write-downs the group took in the September quarter related to the Arrow gas venture in Queensland, but declined to say.

Shell also advised of a further 1000 job cuts, after ending a venture in Malaysia, bringing global job losses to about 7500.

Mr Henry signalled further cuts could be in the offing as the group examines how it can lift efficiency.

“There is not a big program but it is certainly the case that in various activities, in various countries, we will continue to drive costs down,” he said.

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