Despite BG takeover, Shell to slash jobs

Royal Dutch Shell Plc is firm on reducing the headcount as part of its target of trimming operating costs by $3.5 billion.

After the £40-billion takeover, the job loss will account for three percent of combined workforce of Shell and BG. Some investors feel that the acquisition offer by Shell is overpriced for BG.

After the acquisition, the combined entity will emerge as the world's largest liquefied natural gas player. Shell has assured its investors of cost savings.

Shell will cut 2,800 jobs to reach its target of reducing operating costs by $3.5 billion in the wake of taking over BG Group Plc in a £40-billion acquisition deal. Considering the continuous oil price drop, some investors raise questions about offer price by Shell may be overpriced for BG Group Plc.

According to a report by Bloomberg, the Hague-based company will consolidate offices and administrations structure of both the companies once the takeover process is completed. The two companies have offices in several countries including the UK, Brazil and Australia.

The takeover will pave the way for creating the world's biggest liquefied natural gas entity. The combined entity will have oil and gas assets from Australia to Kazakhstan and Brazil.

The oil price is hovering below $35 a barrel on New York bourse. Oil price is trading at a lower level closer to 2008 financial crisis. The oil supply glut may continue through 2016 as well. Standard Life, which is one of the top 20 investors in both Shell and BG Group, has warned that acquisition deal doesn't make financial sense.

The acquisition offer requires oil price level of $60-70 to become attractive for the shareholders.

With China's competition authority approving the acquisition deal, the combined group has received all the regulatory approvals. Shell has completed the final regulatory hurdle. Shell still has to convince its own shareholders.

The £40-billion takeover is expected to be completed by early 2016, as reported by The Telegraph.

Since the assurance of cost savings given to shareholders, Shell is committed on jobs cut. The company in a statement said: "Shell expects the restructuring will be required to achieve the expected benefits of the recommended combination including previously disclosed and reported on pretax synergies of $3.5 billion."

According to the guardian, investors are still chary of the acquisition deal, which was agreed on the assumption of oil price would recover to $90 a barrel by 2020. The oil price fell from $115 in summer 2014 to below $36 now. Energy analysts forecast a further drop in oil prices.

As at the end of 2014, BG's headcount is at 5,143 and Shell has 94,000 staff, according to Bloomberg's data. Shell has reduced the number of employees by 7,500 in regular and contract jobs this year so far.