Analysis - Shell's BG purchase could be catalyst needed for U.S. shale deals

By Anna Driver and Ernest Scheyder

HOUSTON (Reuters) - Royal Dutch Shell Plc's $70 billion (47 billion pounds) agreement to buy BG Group Plc may be just the signal that other dealmakers need to make their own energy takeover bets, particularly in the U.S. shale sector.

Bankers and analysts say that Shell's move is telling potential acquirers that one of the biggest players is now confident enough to make a big play - that the fears of a further big slide in oil and gas prices may be fading.

Following the more than 50 percent collapse in oil prices since the middle of last year, the market has been too volatile to give buyers and sellers clarity on valuations, bankers say, even as potential acquirers knock on doors to examine a range of assets.

 

The Shell deal with BG brings together two European companies with a global reach. A tie-up will ripple across an energy industry ripe for consolidation.

"Things may be changing," said Rich Eychner, an equity research associate at Raymond James in Houston. "Since the meltdown, the bid-ask spread has been too wide. So maybe this is hinting some deals could start moving forward."

There are literally dozens of shale oil and gas companies in the United States. Many have responded to the oil price slide by announcing spending cuts of 25-70 percent in a bid to conserve cash and show investors they have staying power.

But analysts have said that any of the companies, especially those with prime acreage in oil-rich shale fields in Texas, North Dakota and Colorado, could be up for grabs if a sweet enough offer is made.

Analysts at Capital One Southcoast said on Wednesday that BG's U.S. shale assets will become likely candidates for divestiture after the Shell deal closes.

Shell, in buying BG, has made a conscious choice to double-down on global liquefied natural gas (LNG) projects and de-emphasize U.S. shale.

'LOTS OF DISCUSSIONS'

There could easily be consolidation among shale companies, or purchases of them by the largest Western oil giants, though none would likely get close to the size of the BG mega-deal, the bankers said.

"There are already a lot of M&A discussions going on," the global head of oil and gas at a top investment bank said recently, before reports had even surfaced about the BG deal.

"You're probably going to see a much bigger flow of announcements in the second half of the year because by then people will have adjusted to the new environment," he added.

To be sure, some prominent shale oil producers have made clear they would like to remain independent, while acknowledging their fiduciary duty to shareholders requires they entertain offers that may arise.

Whiting Petroleum Corp , the largest oil producer in North Dakota, carried out a new round of capital raising to shore up its balance sheet last month and quashed chatter it was for sale.

John Christmann, the new chief executive at Apache Corp. , told Reuters in March he plans to be in his job for a long time as the company transforms itself to show it can be profitable even if U.S. oil prices do not recover soon from current levels just above $50 a barrel.

Exxon Mobil Chief Executive Rex Tillerson recently said there were no limitations on what the Texas-based supermajor might buy in the downturn. It purchased shale gas company XTO in 2010.

That deal increased Exxon's shale know-how, but it was also criticized for increasing the company's exposure to natural gas, which has been less lucrative than oil.

So the oil giants, which have been under pressure for several years to return more cash to shareholders while clamping down on costs and lifting growth, need to be especially selective.

"A smaller oil shale acquisition (for Exxon) may make some sense to help jumpstart volume growth," said Brian Youngberg, who follows the company for brokerage Edward Jones in St. Louis. "I believe investors want the company to primarily focus on its organic opportunities rather than a big acquisition."

(Writing by Terry Wade; Editing by Martin Howell)