The writer is the chief executive of Royal Dutch Shell.
Monday saw the birth of a new player in the global energy industry. In the midst of some of the toughest market conditions in decades, the joining together of Shell and BG creates a company of extraordinary strengths – a combination greater than the sum of our parts.
I feel privileged to be part of this historic, transformative moment. It has been an intense 10 months since we first announced the combination with BG and yesterday was a very special milestone for us – officially the first day of operations for the combined company.
It has also been a period of great volatility. Although the oil price has fallen since our announcement, I remain convinced of the strategic and financial merits of the deal.
Over time, I expect the fundamentals of energy supply and demand to reassert themselves and the strategic and economic benefits of the deal to fully deliver for shareholders. The deal reinvigorates Shell and will be a springboard for further transformation. We now plan to shape a simpler, leaner, more agile and competitive company focusing on our priorities for growth in liquefied natural gas (LNG) and deep water.
The acquisition significantly boosts our oil and gas reserves and production capacity, and is expected to provide a strong injection to our operating cash flow.
It underpins our role as one of the world’s largest independent producers of LNG. But this deal is not about size. It is about quality. The combined value of our existing and potential energy projects creates a company more able to brave the cycles in our industry, and strengthens our ability to pay the dividend at any oil price that might reasonably be expected.
In the UK, Shell inherits several current and planned projects in the North Sea. These are a good fit with our existing operations in what is still an important region for energy production, despite the challenges it faces.
Shell has acquired major oil and gas projects in Brazil and Australia, and interests in other key countries.
The deepwater projects in Brazil we now own were one of the major drivers of this deal. Brazil is a country we know well, through the exploration and production aspects of our business, our retail outlets and our low-carbon biofuel joint venture. It is quite simply a country of the highest strategic importance to us, a land with plenty of potential for growth.
Our global deepwater experience and technical expertise will help us build on our existing relationship with the national oil company Petrobras. The Libra joint venture already plans to develop a major oilfield 170 kilometres off the coast of Brazil. Our newly acquired deepwater operations off Brazil will now add to current production from our Parque das Conchas oil and gas project.
We see potential for immediate benefits from our and BG’s complementary LNG operations in Australia and Trinidad and Tobago, as well as in Asia – a crucial and growing market.
Other clear benefits include BG’s strong position in trading and shipping, which will bolster Shell’s capabilities, volumes and relationships in these core areas for the future development of the global gas market.
We are determined to use this coming together to achieve efficiencies – at $33 billion our planned capital investment in 2016 is considerably less than the combined annual spending of both companies in recent years.
Over the next three years we plan to sell assets, as well as make significant savings in overlapping costs and reduced spending on exploration. We have already announced plans to reduce staff and contractors, which in these harsh economic times is a difficult but necessary step.
This timely rejuvenation of Shell sharpens our ability to adapt and thrive in an energy landscape that will continue to change. It’s clear that business as usual isn’t good enough if the world is to tackle climate change, while making vital energy available to a growing population in need of a decent standard of living.
A global energy transition is under way. I want Shell to be part of this transition by producing more natural gas to replace coal in power generation; continuing to invest in the development of energy sources for the future, such as low-carbon biofuels and hydrogen as a fuel for transport; and by helping to develop carbon capture and storage. We will continue to advocate government-led carbon-pricing systems.
This is one of the largest acquisitions in UK corporate history and the biggest in the energy industry for many years. However, we must not forget that people make companies and we will make sure that our combined teams blend together smoothly. There is much to learn from one another. Those who have worked hard to build BG’s impressive portfolio will find they are among like-minded people. Bright, inventive, resilient people who care about the industry they work in, and about the health of our planet.
To create a more structured and transparent process for integration of the companies, we have set up a transition organisation. Each existing part of Shell’s business will be swift to understand the activities and support needed for our new assets and businesses.
We must now set about delivering the value we have promised. Ahead lie several months of detailed collaboration between colleagues from both Shell and BG to achieve full integration towards the end of this year.
In my 32 years with Shell I have sometimes heard people say: “This company is like an ocean-going tanker. It takes an age to turn.” With the completion of this deal, we have truly changed course – and are now going full speed ahead.
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