Markets

Royal Dutch Shell/BG Group Merger Gets the Green Light, What Now?

Royal Dutch Shell and BG Group's merger deal received a green light from the the companies' shareholders, and the pair is now working on cementing themselves together. But although investor opinion of the merger was high before the deal was sealed, things aren't looking quite as pleasant now.

In this clip, Sean O'Reilly, Taylor Muckerman, and Tyler Crowe talk about how investors should consider the merger, and how solid the new entity's prospects are for the future.

A transcript follows the video.

The next billion-dollar iSecret

The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

This podcast was recorded on Jan. 28, 2016.

Sean O'Reilly: Royal Dutch Shell and BG Group, their deal got finalized. But the real question is, now what? Eighty percent of shareholders approve of the merger, thinking management would be able to make something of it. Obviously, things have not been going well in the oil and natural gas markets, BG being a natural gas player. Is it too early to call this a failure, or did shareholders really, truly get burned for their trust in Royal Dutch Shell's management? Taylor, what do you think?

Taylor Muckerman: Too soon. Yeah. They're not expected to double their LNG production for a couple more years with this deal. Let's give them at least a little time to be one company. They're not together yet; it's still in the approval process, so let's give them time before they either do or don't shoot themselves in the foot. Right now, they haven't done anything except make an offer and try to solidify it. That's all right.

O'Reilly: Everything's 20/20 in hindsight. Do you think given what we know now -- natural gas is at $2 -- do you think maybe they shouldn't have done it? Given what we know now.

Muckerman: I guess you could compare [ ExxonMobil ], when they purchased XTO.

Tyler Crowe: XTO Energy back in 2010.

Muckerman: And then natural gas prices fell off a cliff. Granted, they didn't buy it in the middle of the downturn. Or, at least, Shell thought they were buying at the bottom of the downturn; it turns out it wasn't the bottom. But, I could only see upward movement from here over the long term.

O'Reilly: Fingers crossed.

Muckerman: Exactly.

Crowe: I think the LNG scenario, for them, will be pretty robust. There's calls for over the next two to three years that it won't be that great, but let's look beyond that, because, like you were saying, a lot of their ramp-up is going to be a few years down the road. On that end, I think they're going to be pretty good. But offsetting that, one thing that worries me a little bit is going to be, when you combine these two companies, they have a very high exposure to deepwater production, especially in places like Brazil.

O'Reilly: Which is long tail, high costs. Lots of fun.

Crowe: Exactly. And that's one of the things that certainly ... well, I'm not going to say we're going to stay in this low-price oil environment for a long time. I think in the next couple years or so, we're going to see some sort of recovery, because right now, it's pretty unsustainable in terms of development and anybody actually making any money. But beyond that, these high-cost places like Brazil, Shell already nixed its Arctic exploration programs ... being tied so heavily to the deepwater production is going to make me a little bit nervous when we have shorter-cycle, cheaper options like shale oil, shale gas, that are starting to emerge. Maybe then, deepwater isn't going to be as attractive as it looks today.

The article Royal Dutch Shell/BG Group Merger Gets the Green Light, What Now? originally appeared on Fool.com.

Taylor Muckerman has no position in any stocks mentioned. Tyler Crowe owns shares of ExxonMobil. The Motley Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More