Shell Wins U.S. Approval for BG Group Buyout, but Will Australia Say Yes?

NEW YORK (The Deal) -- Royal Dutch Shell's  (RDS.A) $74 billion takeover bid for BG Group has cleared its first regulatory hurdle, gaining approval from U.S. authorities -- but tougher tests are still to come.

Hague, Netherlands-based Shell on Tuesday welcomed the early termination of the approval process by the Federal Trade Commission, stating that it demonstrated the progress already made toward finalizing the energy sector's biggest takeover in more than a decade.

"We're well underway with anti-trust and regulatory filing processes in relevant jurisdictions around the world and we are confident that ... the deal will receive the necessary approvals," Shell CEO Ben van Beurden said in a statement. "We remain on track for completion in early 2016."

The most likely regulatory challenge to that timetable will come from Australia, where the Australian Competition and Consumer Commission on June 11 launched its investigation into the takeover.

The review comes at a sensitive moment for both Australia's gas market and the regulator. A day after the ACCC announced the commencement of its inquiry into Shell and BG's deal, it kicked off a year-long review of competition among East Coast gas producers. That inquiry was prompted by complaints from domestic manufacturers. They claim that increasing exports of Australian gas have left them unable to secure long-term supply agreements and forced prices rapidly higher.

Manufacturing Australia, a lobbying group representing building product groups, fertilizer makers and steel companies, claims increased Australian gas prices will cost manufacturers about A$120 billion ($92.2 billion) by 2021 and put about 83,000 jobs at risk.

"Just a handful of economic interests now control the vast majority of Australia's current gas reserves, while regulatory barriers, infrastructure constraints and the lack of transparent markets and trading hubs prevent new gas supply, and new suppliers, from entering the market," Manufacturing Australia Chairman Mark Chellew said in a statement last week.

The combination of Shell and BG would further consolidate the Australian gas market by bringing together two significant players in Australia's East Coast gas sector. Shell owns 50% of Arrow Energy, a holder of vast undeveloped coal-bed methane fields in the Surat and Bowen basins in Queensland. BG owns QGC, a $20 billion offshore plant that began processing coal seam gas for export in December. Analysts expect Shell to use QGC to process and export gas produced by Arrow, which currently has no route to overseas markets.

Issues around Australian domestic gas supply are a concern for regulators there but I doubt that it will end with Australia moving to block the deal," said Canaccord Genuity Group analyst Richard Griffith.

The ACCC is due to deliver its report on the Australian gas industry by April next year. That is likely to be preceded by its ruling on the Shell and BG deal. The regulator has promised a "statement of issues", which could set out demands for concessions, or a "final decision" on the takeover by Sept. 3.

"Australian is one of the jurisdictions where approval is a pre-condition for the offer's completion," said Shell spokesman Jonathan French. "We are confident that we are on track to complete the transaction."

The takeover also needs approval from Chinese, Brazilian and European Union regulators.

Shell was trading up around 0.4% late Wednesday afternoon in New York at $58.50. BG shares in London traded at 1,084, up 3 pence.

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