Shell cuts spending by $2bn, readies to acquire BG

The combined company plans $33bn of capital spending next year, lower than Shell's previous guidance of $35bn, it announced last week

The oil producer has justified the deal to shareholders by saying that it boosts its ability to maintain dividends.
The oil producer has justified the deal to shareholders by saying that it boosts its ability to maintain dividends.

Royal Dutch Shell, Europe’s largest oil company and a global major, further reduced spending plans for this year and 2016 as it prepares to take over BG Group amid slumping prices of crude oil.

The combined company plans $33bn of capital spending next year, lower than Shell’s previous guidance of $35bn, it announced last week, according to Bloomberg. Shell also cut its spending forecast for this year by $1bn to $29bn.

Crude’s collapse to less than $37 a barrel from about $55 on the day the deal was announced in April has prompted some investors to question whether Shell is paying too much.

The oil producer has justified the deal by saying that it boosts its ability to maintain dividends, makes it the world’s biggest liquefied natural gas company and gives it oil and gas assets from Australia to Brazil, including major operation in the GCC.

“The two companies are combining during a low oil-price environment and cutting their spending plans makes a lot of sense,” Jason Gammel, a London-based analyst with Jefferies International told Bloomberg. “This moves the plans for the deal forward.”

Shell expects operating costs to fall by $4bn this year, about 10% lower than last year, and by $3bn in 2016. The acquisition will break even with Brent crude prices in the low $60s and add to operating cash flow per share at $50 a barrel in 2016, the company said in a statement.

It expects the deal to be accretive to earnings per share, excluding identified items, in 2017 at $65 brent crude.

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