Shell faces huge task in crafting an enlarged oil group with BG

One is seen as a sprawling behemoth, the other a nimble buccaneer. For fans of a "small is beautiful" approach to oil and gas exploration, there appears little to love in Royal Dutch Shell's proposed £55bn takeover of BG Group.

The blockbuster deal's logic is compelling. Shell gains attractive assets: a much bigger liquefied natural gas business and valuable deepwater oil reserves off Brazil. The UK company fills a big gap in the Anglo-Dutch group's reserves.

The risks lie in its execution. Mishandle the companies' integration and the ingredients of BG's exploration success may slip through Shell's fingers. Talented employees who joined BG for the autonomy of a smaller rival may choose to quit rather than be subsumed into a workforce of 93,000.

This is not the official line. But it is representative of some of the fears being voiced privately at BG's UK headquarters in Reading, where employees are braced for probable job losses once the deal closes next year.

About 1,200 of BG's 5,000 staff are based in the UK, including in Aberdeen and Reading, and hundreds of roles could go within the enlarged group as Shell strips out duplicative functions to secure $1bn a year in cost savings. These form part of a broader plan for $2.5bn in annual savings from 2018.

One former BG executive says: "There will be an awful lot of discard. I can't see many of BG's employees being integrated. Some people are genuinely upset."

Shell has little experience of takeovers of this size. The company did not participate in the energy megamergers of the 1990s, although Shell took on significant numbers of people when buying the rest of Shell Canada that it did not own. Integration, therefore, will be a huge challenge.

But how great is the clash of cultures between the two?

All the big oil companies have distinctive traits. One industry insider likens their cultures to career types: ExxonMobil is the businessman, BP the diplomat and Shell the academic. It, in turn, is different to BG.

"You'd know a Shell person when you meet them - considered, intellectual, well-rounded, sophisticated and articulate. They speak five languages and have gone to the best universities," says an executive who has worked at both companies.

Others voice their "incredible respect" for Shell, pointing to its strengths: legendary engineering expertise, the ability to handle vast, technologically difficult projects such as the Prelude LNG platform, the world's largest floating offshore vessel, and leadership in deepwater oil and gas.

But some former employees - those with little affection for Shell - say it is a hierarchical and bureaucratic organisation, where people devote decades to scaling management layers.

One talks of a "command and control" culture where the centre rules, and acronyms have multiplied. Ben van Beurden, Shell's chief executive, is described as "CE BB" in emails. Departments have their own initials, too, giving it a civil service-style feel.

Senior executives, though, dismiss this image of a lumbering giant. "Don't underestimate our ability to move quickly," says one.

BG, built around the bold management style of former chief executive Sir Frank Chapman, has a reputation for swift decision-making and hard-nosed commercial nous.

One former employee says that under Sir Frank, a tight inner circle acted with "phenomenal speed" to develop resources or take large positions in the LNG market.

Some regard it as more of an energy trader than a producer. But when it comes to finding oil, BG's "go-go" mentality has paid off.

In the 15 years to 2012 it made 16 vast discoveries. That exploration record, unmatched by the majors, together with its trading expertise, make the company an attractive proposition.

Yet investors, analysts and former employees identify BG's culture as having contributed to more recent problems, making it vulnerable to a takeover. As BG grew, it needed a management structure closer to that of an oil major such as Shell rather than the "personal network" built by Sir Frank, says one former employee.

By 2012, the group's high-flying share price was riding unrealistic expectations of how long it would take to deliver projects. Executives were over-optimistic, carried along by an unsustainable pace of organic growth. A string of operational disappointments, profit warnings and management upheaval followed.

"It's very difficult to take on 20 to 30 year projects and remain agile," says one former BG employee. "The growing pains of teenager-hood were too much."

Shell will bring the decades of operational experience in delivering big projects that BG needs. But simply ejecting or demoting the new arrivals, as often happens in takeovers, could be a mistake.

Simon Henry, Shell's chief financial officer, appears alive to this, telling reporters last week that there could be "more opportunity in our own shop" to find savings.

Charles Whall, who manages a global energy fund at Investec Asset Management, advocates a "best man for the job" approach.

"This is a chance to take a deep look at an organisation that, in Shell, may be too comfortable. It's difficult for the tail to wag the dog but this could be a positive process," he said.

And Chris Wheaton, fund manager at Allianz Global Investors, plays down the idea that it will be BG staff who will bear the brunt of the cuts. He argues Mr van Beurden "has identified the Shell culture needs changing, that you can't just have a bunch of really clever people sitting round a table in a room talking about stuff".

"Sometimes you've got to be nimbler, act like you're smaller. This will inject a whole new set of DNA into Shell," he says.

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