Abu Dhabi

More oil and gas deals are expected as Royal Dutch Shell agrees to buy BG Group for about $70 billion (Dh257 billion) in cash and shares on Wednesday, analysts said.

“The industry is likely to see some more such deals, as the oil price has been at a relatively low level for the past eight months,” said Louis Bresland, AlixPartners Managing Director and head of the firm’s Middle East Oil, Gas & Chemicals practice.

He said it is an opportunity for large groups to renew their oil reserves by acquiring smaller groups with good reserves that need more investments to be developed. “We may even see further mergers of large International Oil Companies as we saw in the 1990s for example Exxon and Mobil, Chevron and Texaco, BP and Amoco, Total and Elf.”

Buying of BG group by Royal Dutch Shell is being considered as one of the biggest deals in the oil and gas industry in recent times as oil prices slide due to record production and weak demand with companies trying to cut costs to increase profits.

From a peak of $115 in June, oil prices reduced to less than $60 this month. Analysts predicted oil prices to remain low all through the year and probably in the first quarter of 2016.

Organisation of the Petroleum Exporting Countries (Opec) refused to cut production to prop up prices.

Bresland said there would be an increased merger and acquisition activity not only among oil producers but also within the service industry.

“This has already started for example Halliburton with Baker Hughes or Amec with Foster Wheeler. We should also see activity among the shale oil or gas companies and in the offshore service sector that have been more directly hit by the lower oil price and are facing some cash issues.”

Halliburton acquired Baker Hughes in a record deal of $35 billion last year.

Francisco Quintana, head of economic research at Asiya Investments, said Shell’s acquisition of BG Group came as “a bit of a shock” and would not have taken place if [oil] prices were high.

“We were expecting to see these moves in the shale sector in the US, with smaller firms being absorbed by larger players, a normal consolidation process when prices adjust after a long expansion,” he said. He added that the same would eventually happen to financially fragile larger international firms after a prolonged period of low oil prices later this year or in 2016.

“There are many firms that got caught up in expensive investment plans that are only profitable with oil at $100 and soon will have to pay back debt with the revenues generated under current prices,” Quintana said.