Royal Dutch Shell plc (ADR) (NYSE:RDS.A) Buyout Of BG Groups Created Ripples Across The Market

Royal Dutch Shell plc (NYSE:RDS.A) proposed buyout of the BG group is just the start of energy sector mergers according to FadelGheit, the senior energy analyst at Oppenheimer & Co. He further stated that the market was full of too many competitors, and there cost inflation was skyrocketing.

Analyst identify potential hold signals in RDS.A.

On Wednesday, Royal Dutch Shell had announced that it had struck a deal to buy BG Group for $70 billion. The buyout will boost Shell’s oil reserves by 25% and its production by 20%. The acquisition will be largest in the oil industry since 1998 when Exxon bought Mobil.

Exxon has the financial assets to theoretically purchase Shell and is a potential buyer for BG Groups. Also, Rex Tillerson, the CEO of Exxon Mobil might want to leave behind a legacy as he faces mandatory retirement in the next two years. There is also the threat of Fed raising the interest rates, so the companies will have to hurry if they want to strike a deal.

Roberto Friedlander, head trader at Brean Capital is of the opinion that the potential targets for acquisition are Hess, Anadarko Petroleum, Whiting Petroleum, Marathon Oil and EOG Resources.

In Europe, the London-based Tullow Oil is the most likely acquisition target according to Michael Hewson, the senior oil analyst at CMC Markets. Though the huge buyout of BG by Shell is a landmark yet it is difficult to tell whether the deal will lead to similar mergers. Tamar Essner, a Nasdaq energy analyst is of the view that executives are wary due to price fluctuations, and that might lead to mergers not happening

The BG deal will increase Shell’s exposure to deep water drilling and natural gas products. The crude oil prices are at a low and have shown protracted weakness.

The deal was called “very good fit” by Royal Dutch Shell plc (NYSE:RDS.A) CEO, Ben Van Beurden.

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Stinson is US Markets Daily’s Senior Producer for News & Public Affairs.

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