REG-Royal Dutch Shell: Recommended combination Shell + BG: documents published <Origin Href="QuoteRef">RDSa.L</Origin>

ShellAnnouncement

22/12/2015 15:50

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO
ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT
LAWS OF SUCH JURISDICTION. This announcement is an advertisement and not a
prospectus. Investors should not purchase or subscribe for any shares referred
to in this announcement except on the basis of information in the prospectus
expected to be published later today by Shell in connection with
the combination. Copies of the prospectus will, following publication, be
available from the registered office of Shell and in electronic form at 
www.shell.com, subject to certain access restrictions applicable to persons
resident outside the UK.

For immediate release

22 December 2015

Shell's recommended cash and share offer for BG Group plc: publication of
circular and prospectus

  * Circular and prospectus published today following unanimous recommendation
    by Shell Board
   
  * Transaction should enhance free cash flow, accelerate deep water and LNG
    strategy, and create a springboard to reshape Shell
   
  * Combination with BG enhances Shell's ability to cover investment and
    dividends, in any reasonably expected oil price environment
   
  * Shell continues to pull multiple levers to manage shareholder returns in
    the downturn
   
  * Reducing costs and capital investment by $12 billion in 2015, with further
    reductions expected in 2016
   
  * 2016 capital investment for the combination around $33 billion, $2 billion
    lower than previous guidance, and 30% lower than 2014 levels
   
  * Timetable published for completion of the combination in early 2016, as
    planned
   
The Hague, 22 December 2015 - Royal Dutch Shell plc ("Shell") today published a
circular and a prospectus for the recommended combination with BG Group plc
("BG"), ahead of a General Meeting, scheduled for 10:00 (Central European Time)
on Wednesday 27 January 2016 at the Circustheater, Circusstraat 4, 2586 CW The
Hague, The Netherlands. In addition, BG has published a scheme document ahead
of its shareholder meetings.

As announced on 8 April 2015 under the terms of the combination, BG
shareholders will be entitled to receive:

for each BG share:          383 pence in cash; and

                                               0.4454 of a Shell B share (note
1).

As at close of business on 18 December 2015, this offer reflects:
                                                        

  * a value of approximately 1,037 pence per BG share (note 2)
  * a total value of approximately £35.6 billion ($53.0 billion) in cash plus
    shares (notes 2 and 3).

The combination with BG should lead to:

  * Enhanced free cash flow - the addition of BG's portfolio growth, especially
    from Brazil and Australia, combined with pre-tax synergies (note 4) of $3.5
    billion should enhance Shell's free cash flow. This enhances Shell's
    dividend potential in any reasonably expected oil price environment. In
    particular it underpins the company's intention to pay a dividend of $1.88/
    share in 2015 and at least $1.88/share in 2016, and plans for share
    buybacks in the period 2017-2020.
   
  * Acceleration of liquefied natural gas (LNG) and deep water leader - Shell
    is a leading IOC player in world-wide LNG and deep water. The combination
    with BG complements Shell's strategy to grow in these themes. We expect the
    combination to accelerate and de-risk our strategy.
   
  * Springboard to reshape Shell - planned asset sales of $30 billion between
    2016-18 and refocused spending would result in a simpler, more focused
    group, concentrated around three pillars: upstream and downstream cash
    engines, deep water and LNG.
   
The circular and the prospectus have been approved by the UK Listing Authority
and are now available at www.shell.com.

A copy of each of the circular and the prospectus have been submitted to the
National Storage Mechanism and will shortly be available for viewing at http://
www.morningstar.co.uk/uk/nsm.

Commenting on today's announcement Chad Holliday, Chairman of Shell, said:

"This is an important moment for Shell. The Board is unanimous in its
recommendation on this transaction. Our industry has entered what could be a
prolonged oil price downturn. The Board is confident that the financials of the
group will be further strengthened by this transaction. This should improve
Shell's ability to cover both dividends and investments. The result will be a
more competitive and stronger company, for both sets of shareholders, in
today's volatile oil price world."

Commenting on the recommended combination Ben van Beurden, CEO of Shell, said:

"The combination with BG represents a tremendous opportunity to create value
for both sets of shareholders, particularly in deep water and LNG. The
combination with BG is a strong platform to refocus the company, to create a
simpler and more competitive Shell.

At the same time, Shell is pulling multiple levers to manage through the
current oil price downturn. We have delivered in 2015, maintaining a strong
balance sheet, and achieving some $12 billion of cost and capital spending
reductions.

Impactful decisions, such as cancelling Carmon Creek heavy oil and Alaska
exploration, underscore the dynamic choices we are taking in Shell on
investment and portfolio. Compared with 2014 we have reduced our capital
investment by $8 billion, or 20% this year, and reduced operating costs by $4
billion, or around 10%.

We aim to reduce costs and capital spending once again in 2016, as we combine
Shell with BG, and continue to take impactful decisions on portfolio and
options. This is to ensure that Shell can continue to finance the investment
programme and the dividend, despite the downturn.

Shell's track record shows we can adapt our financial framework, cost structure
and strategy to any reasonably expected oil price environment, in order to
deliver competitive returns to shareholders.

We have moved decisively in 2015 on spending and portfolio, and I am determined
we will act decisively again in the coming years, " van Beurden concluded.

Pulling multiple levers to manage shareholder returns in the downturn

The end-2015 fall in oil prices underscores that today's oil price downturn
could last for several years. Shell's plan reflects market realities, making
sure the company is resilient.

  * Gearing at the end of Q3 2015 stood at 12.7% relative to 12.2% at end 2014,
    despite lower oil prices, reflecting good operational performance during
    the downturn, expenditure reductions and the introduction of the scrip
    dividend.
   
  * Shell's operating costs are expected to fall by $4 billion in 2015, a
    reduction of around 10% from 2014 levels of $45 billion. Shell's costs
    should be reduced by a further $3 billion in 2016, marking a reduction of
    $7 billion in 2015 and 2016 combined, or 15% from a 2014 baseline. This
    reflects Shell's industry-leading actions to reduce costs on a sustainable
    basis. These figures exclude cost synergies potential from the combination
    with BG.
   
  * In 2015 it was announced to reduce Shell staff and direct contractor
    positions by 7,500 globally, and a further reduction of 2,800 staff is
    expected as a result of the recommended combination with BG.
   
  * In 2015, firm actions by the company to reduce capital investment and
    restructure longer term themes have included cancellation of the Carmon
    Creek heavy oil development in Canada, and exit from Alaska exploration.
    Shell took just four significant final investment decisions (FIDs) in 2015,
    of which three were downstream projects and one in the upstream.
   
  * 2015 capital investment is expected to be around $29 billion, a reduction
    of $8 billion, or over 20% from 2014 levels, and lower than our previous
    guidance of $30 billion.
   
  * 2016 capital investment for the combination of Shell and BG is expected to
    be around $33 billion in current market conditions, $2 billion lower than
    previous guidance of $35 billion. This marks a reduction of around 30% from
    the combination of Shell and BG in 2014, which on a combined group basis
    was $47 billion.
   
  * The final outcome for 2016 capital investment will depend on Shell's
    assessment of BG's capital commitments following completion of the
    transaction, and decisions on FID pace during the year. Capital allocation
    is a dynamic decision-making process.
   
  * At the same time, Shell is continuing to invest to complete its post-FID
    projects. These should add material cash flow and free cash flow in the
    medium term, with more than 700,000 barrels of oil equivalent per day and
    9.7 million tonnes per annum of LNG under construction for 2016-2019
    start-up. BG's portfolio should bring further growth potential, at a
    competitive cost.
   
  * Asset sales should total around $20 billion for 2014 and 2015 combined,
    despite weak market conditions in 2015. Planning is well advanced for a $30
    billion asset sales programme in 2016-18, assuming the successful
    completion of the combination.
   
    Financial effects of the Shell BG combination
   
Shell believes that the combination has the potential for significant value
creation for both sets of shareholders.

High-grading of the combined group's longer-term portfolio, increased asset
sales and refocused capital investment, should enhance Shell's free cash flow
and improve the ability to cover capex, interest and dividends in any
reasonably expected oil price environment.

The significant equity component of the combination means that the effective
offer price changes with movements in the share price of Shell, which is in
turn influenced by factors such as equity market and oil price movements.

  * The NAV oil price breakeven for the combination is estimated to be in the
    low $60s Brent oil prices, taking account of the transaction structure,
    current equity market conditions, reduced operating cost forecasts and
    capital expenditure over time, together with other factors, including
    synergies.
   
  * Shell expects the combination to be accretive to cash flow from operations
    per share in 2016, assuming $50 Brent oil prices or higher.
   
  * Shell's assessment is that there should be accretion to free cash flow per
    share in 2016 as a result of the combination assuming $50 Brent oil prices
    or higher (note 5). This underlines the benefits of the transaction for
    shareholders, particularly in the current oil market downturn, as it
    structurally reduces the oil price breakeven of Shell. This also underlines
    Shell's stated intention to pay dividends of at least $1.88 per share in
    2016.
   
  * Shell expects the combination to be accretive to earnings per share in
    2017, on a CCS basis and excluding identified items, assuming $65 Brent oil
    prices or higher (note 6).
   
  * Shell expects the impact of the transaction to be neutral to group return
    on average capital employed in 2018 at $60 oil prices, and accretive
    thereafter at similar oil prices (note 7).
   
    These estimates (note 8) reflect the significant potential for creation of
    value for shareholders in the combination.
   
    Expected timetable of principal events
   
    Publication of prospectus and circular
                                                                            22 
    December 2015
   
    Publication of Shell update on fourth quarter 2015 and full year
   
    unaudited
    results                                                                                               
                    20  January      2016
   
    Publication of BG operational and trading
    update                                                             
    20 January      2016
   
    Shell General
    Meeting                                                                                                       
    27 January      2016
   
    BG General
    Meeting                                                                                           
                   28 January      2016
   
    Shell Q4 2015 and full year
    results                                                                                     
    4  February    2016
   
    BG Q4 2015 and full year
    results                                                                           
                 5  February    2016
   
    Scheme court
    hearing                                                                                                       
    11  February    2016
   
    Effective
    date                                                                                                                     
    15  February    2016
   
    These dates and times are indicative only and are based on current
    expectations and are subject to change. If any of the times and/or dates
    change, the revised times and/or dates will be announced via a Regulatory
    Information Service.
   
    Enquiries
   
    Shell Media Relations
   
    International: +44 207 934 5550
   
    Americas: +1 713 241 4544
   
    Shell Investor Relations
   
    Europe: + 31 70 377 4540
   
    North America: +1 832 337 2034
   
    Notes
   
    1    The issue of Shell B shares is subject to the continuing applicability
    of the Dutch Revenue Service's confirmation of the Dutch tax treatment of
    the Shell B shares, such confirmation being conditional on the combination
    being implemented pursuant to a scheme of arrangement. If Shell were to
    implement the combination by way of a takeover offer in the specific
    circumstances set out in the prospectus, the share component of the
    consideration would comprise Shell A shares only and BG shareholders would
    be entitled to receive 0.4454 Shell A shares and 383 pence in cash per BG
    share.
   
    2    Based on a closing price of 1,469 pence per Shell B share on 18
    December 2015.
   
    3    Based on the fully diluted share capital of BG as set out in the
    prospectus. For the value stated in US dollars, an exchange rate of £1.00/
    US$1.4908 has been used, which was derived from data provided by Bloomberg
    as at 4.30 p.m. London Time on 18 December 2015.
   
    4    The quantified estimated synergies which are referred to in this
    announcement are subject to the bases of belief, principal assumptions and
    sources of information set out in the Appendix to Shell's management day
    announcement on 3 November 2015 providing investors with a strategic update
    (and which are contained in Appendix 2 of the BG scheme document). Shell's
    modelling of the combination includes additional synergies, that cannot be
    quantified and reported on under the Takeover Code.
   
    5    Free cash flow per share is calculated as the net of cash flow from
    operations less cash flow from investing activities, divided by share
    count. The 2016 statement reflects accretion without taking into account
    any asset sales resulting from the combination.
   
    6    If the combination completes, an annual non-cash post-tax charge to
    the Shell group's income statement is expected through a step up in annual
    depreciation charges of approximately $1.0 billion, which has been included
    in this statement.
   
    7    For the purpose of this announcement, Shell defines return on average
    capital employed as income for the relevant period on a current cost of
    supply ("CCS") basis, excluding identified items, as a percentage of the
    average capital employed for the period. Forward looking assessments of the
    impact of the combination on Shell's return on average capital employed
    have been compiled by Shell management.
   
    8    The statements that the combination is expected to be accretive to
    cash flow from operations per share, free cash flow per share, earnings per
    share, or the effect on return on average capital employed, should not be
    construed as profit forecasts and are therefore not subject to the
    requirements of Rule 28 of the Takeover Code. Calculated as at 18 December
    2015, being the last practicable date before publication of the circular
    and the prospectus.
   
    Cautionary note
   
    This announcement is not intended to and does not constitute or form part
    of any offer to sell or subscribe for or any invitation to purchase or
    subscribe for any securities or the solicitation of any vote or approval in
    any jurisdiction pursuant to the recommended combination of Royal Dutch
    Shell plc ("Shell") and BG Group plc ("BG") (the "Combination") or
    otherwise nor shall there be any sale, issuance or transfer of securities
    of Shell or BG pursuant to the Combination in any jurisdiction in
    contravention of applicable laws.
   
    Statements of estimated cost savings and synergies relate to future actions
    and circumstances which, by their nature, involve risks, uncertainties and
    contingencies. As a result, the cost savings and synergies referred to may
    not be achieved, may be achieved later or sooner than estimated, or those
    achieved could be materially different from those estimated. For the
    purposes of Rule 28 of the Takeover Code, the quantified financial benefits
    statement contained in this announcement is the responsibility of Shell and
    the Shell directors. Neither this statement nor any other statement in this
    announcement, including accretion statements or statements as to the effect
    of the Combination on return on average capital employed, should be
    construed as a profit forecast or estimate for any period and are therefore
    not subject to the requirements of Rule 28 of the Takeover Code.
   
    No statement should be interpreted to mean that the combined group's
    earnings, earnings per share, income, cash flow from operations or free
    cash flow for the current or future financial periods, would necessarily
    match or be greater than or be less than those of Shell or BG for the
    relevant preceding financial period or any other period.
   
    All amounts shown throughout this announcement are unaudited.
   
    The companies in which Royal Dutch Shell plc directly and indirectly owns
    investments are separate entities. In this announcement "Shell", "Shell
    group" and "Royal Dutch Shell" are sometimes used for convenience where
    references are made to Royal Dutch Shell plc and its subsidiaries in
    general. Likewise, the words "we", "us" and "our" are also used to refer to
    subsidiaries in general or to those who work for them. These expressions
    are also used where no useful purpose is served by identifying the
    particular company or companies. ''Subsidiaries'', "Shell subsidiaries" and
    "Shell companies" as used in this announcement refer to companies over
    which Royal Dutch Shell plc either directly or indirectly has control.
    Companies over which Shell has joint control are generally referred to as
    "joint ventures" and companies over which Shell has significant influence
    but neither control nor joint control are referred to as "associates". The
    term "Shell interest" is used for convenience to indicate the direct and/or
    indirect
   
    ownership interest held by Shell in a venture, partnership or company,
    after exclusion of all third party interest. The term "BG" is sometimes
    used to mean BG Group plc and sometimes BG Group plc and its subsidiaries.
   
    This announcement contains forward-looking statements concerning the
    financial condition, results of operations and businesses of Royal Dutch
    Shell and of the Combination. All statements other than statements of
    historical fact are, or may be deemed to be, forward-looking statements.
    Forward-looking statements are statements of future expectations that are
    based on management's current expectations and assumptions and involve
    known and unknown risks and uncertainties that could cause actual results,
    performance or events to differ materially from those expressed or implied
    in these statements. Forward-looking statements include, among other
    things, statements concerning the potential exposure of Royal Dutch Shell,
    BG and the combined group to market risks and statements expressing
    management's expectations, beliefs, estimates, forecasts, projections and
    assumptions, including as to future potential cost savings, synergies,
    earnings, cash flow, return on average capital employed, production and
    prospects. These forward-looking statements are identified by their use of
    terms and phrases such as ''anticipate'', ''believe'', ''could'',
    ''estimate'', ''expect'', ''goals'', ''intend'', ''may'', ''objectives'',
    ''outlook'', ''plan'', ''probably'', ''project'', ''risks'', "schedule",
    ''seek'', ''should'', ''target'', ''will'' and similar terms and phrases.
   
    There are a number of factors that could affect the future operations of
    Royal Dutch Shell, the BG group and the combined group and could cause
    those results to differ materially from those expressed in the
    forward-looking statements included in this announcement, including
    (without limitation): (a) price fluctuations in crude oil and natural gas?
    (b) changes in demand for Shell's, BG group's or the combined group's
    products? (c) currency fluctuations? (d) drilling and production results?
    (e) reserves estimates? (f) loss of market share and industry competition?
    (g) environmental and physical risks? (h) risks associated with the
    identification of suitable potential acquisition properties and targets,
    and successful negotiation and completion of such transactions? (i) the
    risk of doing business in developing countries and countries subject to
    international sanctions? (j) legislative, fiscal and regulatory
    developments including regulatory measures addressing climate change? (k)
    economic and financial market conditions in various countries and regions?
    (l) political risks, including the risks of expropriation and renegotiation
    of the terms of contracts with governmental entities, delays or
    advancements in the approval of projects and delays in the reimbursement
    for shared costs? and (m) changes in trading conditions.
   
    All forward-looking statements contained in this announcement are expressly
    qualified in their entirety by the cautionary statements contained or
    referred to in this section. Readers should not place undue reliance on
    forward-looking statements. Additional risk factors that may affect future
    results are contained in Royal Dutch Shell's Form 20F for the year ended
    December 31, 2014 (available at www.shell.com/investor and www.sec.gov) and
    in the prospectus. These risk factors also expressly qualify all
    forward-looking statements contained in this announcement and should be
    considered by the reader.
   
    For a discussion of important factors which could cause actual results to
    differ from forward looking statements relating to BG and the BG group,
    refer to BG's annual report and accounts for the financial year ended 31
    December 2014.
   
    Each forward-looking statement speaks only as of the date of this
    announcement. Neither Royal Dutch Shell plc nor any of its subsidiaries
    undertake any obligation to publicly update or revise any forward-looking
    statement as a result of new information, future events or other
    information. In light of these risks, results could differ materially from
    those stated, implied or inferred from the forward-looking statements
    contained in this announcement. There can be no assurance that dividend
    payments will match or exceed those set out in this announcement in the
    future, or that they will be made at all.
   
    No statement (including any statement of estimated synergies) is intended
    as a profit forecast or estimate for any period. Accretion statements or
    statements as to return on capital employed should not be construed as
    profit forecasts and are, therefore, not subject to the requirements of
    Rule 28 of the Takeover Code.
   
    In accordance with Rule 26.1 of the Code, a copy of this announcement is
    also available on the website of Shell at: www.shell.com.For the avoidance
    of doubt, the contents of the website referred to in this announcement are
    not incorporated into and do not form part of this announcement.
     
   
    Notice to BG shareholders resident in France
   
    A copy of the prospectus approved by the UK Listing Authority and the
    certificate of approval have been or will be served on the Autorité des
    marchés financiers ("AMF"). A copy of the French translation of the summary
    of the prospectus has been or will be made available free of charge at 
    www.amf-france.org.
   
    Notice to BG shareholders resident in India
   
The information contained in this announcement is directed to each BG
shareholder and does not constitute an offer or invitation or solicitation of
an offer to the public or to any person or class of investors resident in
India.



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