Oil stocks energised by BG deal

Shares in oil companies were energised across Europe by confirmation on Wednesday of the first big deal in the sector after sliding crude prices battered the valuations of its stocks.

Royal Dutch Shell's agreed, £47bn cash-and-stock offer for BG , sent shares in the target company more than 40 per cent higher to £12.96 - the stock's highest level since January 2014 - taking it back to levels seen before the slide in crude prices since June took a heavy toll on valuations in the sector.

The bid, priced at 383p in cash and 0.4454 Royal Dutch B stock for every BG share held, represents a 50 per cent premium on Thursday's closing price.

"We had identified this period of low oil prices as potentially one of those periods when the [oil] majors try to be opportunistic," said Jon Rigby, analyst at UBS.

"There has been a view they would need to go big or not at all. We would see this as a deal proposed by Shell out of necessity not strength, however. We believe there is a risk that Shell's portfolio is being marginalised in the current environment."

Biraj Borkhataria, analyst at RBC Capital Markets, said: "In our view, the key attractions for Shell are BG's deepwater assets in Brazil and its liquefied natural gas (LNG) portfolio, [which] combined with Shell's would represent 16 per cent of the global LNG market, further propelling Shell's position as a leader in this area."

Jason Gammel, equity analyst at Jefferies, said: "The imperative now becomes for management to convince the market of the financial implications: near-term earnings dilution; a significantly more levered balance sheet; and a higher priority for debt reduction versus dividends on cash utilisation."

Shell's London-listed B shares fell 4.8 per cent to £21.02.

BP, which has also spent time at the centre of bid speculation since the oil price slide, rose 3.7 per cent to 472p.

The FTSE 100 crossed back over 7,000 points for the first time in six sessions to reach a day high of 7,012.26, up 0.7 per cent, helped by the gains for some of its biggest constituents.

Tullow Oil, one of the biggest fallers on the main London index over 2014, rose 9.1 per cent to 327.7p and the top of the FTSE 250. It was relegated to the mid-cap index at the last reshuffle after its precipitous decline in lockstep with falling crude prices.

Mid-cap UK oil stocks were higher across the board. Ophir Energy, the African oil explorer, rose 7.8 per cent to 157p. Premier Oil was 3.4 per cent higher at 154.2p.

Back on the FTSE 100, Weir Group, the oilfield services provider, rose 0.8 per cent to £17.92.

The pattern was similar across Europe, Total, the French oil major gained 1.1 per cent to €48.12. Repsol rose 1.4 per cent to €18.32 in Madrid. Norway's Statoil gained 1.6 per cent at NKr155.40.

Overall, the FTSE Eurofirst 300 rose 0.3 per cent to 1,616.39.

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