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Royal Dutch Shell Offers 83 Pence in Cash, 0.4454 Shell B Shares/BG Group Share

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The Boards of Shell (NYSE: RDS-A)(NYSE: RDS-B) and BG (OTC: BRGYY) are pleased to announce that they have reached agreement on the terms of a recommended cash and share offer to be made by Shell for the entire issued and to be issued share capital of BG.

Under the terms of the Combination, BG Shareholders will be entitled to receive:
For each BG Share: 383 pence in cash; and

0.4454 Shell B Shares[1]

Based on the 90 trading day volume weighted average price of 2,170.3 pence per Shell B Share on 7 April 2015 (being the last Business Day before the date of this Announcement), the terms of the Combination represent:
- a value of approximately 1,350 pence per BG Share; and

- a premium of approximately 52% to the 90 trading day volume weighted average price of 890.4 pence per BG Share on 7 April 2015.

1. The issue of Shell B Shares is subject to the continuing validity of the Dutch Revenue Service's consent described in paragraph 13 of this Announcement, such consent being conditional on the Combination being implemented pursuant to a scheme of arrangement. If Shell were to implement the Combination by way of a takeover offer in the specific circumstances set out in paragraphs 13 and 27 of this Announcement, the share component of the Consideration would comprise Shell A Shares only and BG Shareholders would be entitled to receive 0.4454 Shell A Shares and 383 pence in cash per BG Share.

Based on the Closing Price of 2,208.5 pence per Shell B Share on 7 April 2015 (being the last Business Day before the date of this Announcement), the terms of the Combination represent:
- a value of approximately 1,367 pence per BG Share;

- a premium of approximately 50% to the Closing Price of 910.4 pence per BG Share on 7 April 2015; and

- a value of approximately £47.0 billion for BG's entire issued and to be issued share capital.

The Combination will result in BG Shareholders owning approximately 19% of the Combined Group.
Shell expects the Combination to accelerate its growth strategy in global LNG and deep water.
The Combination will add some 25% to Shell's proved oil and gas reserves[2] and 20% to production, each on a 2014 basis, and provide Shell with enhanced positions in competitive new oil and gas projects, particularly in Australia LNG and Brazil deep water.
The Combination has the potential to unlock further value for both sets of shareholders from the combined portfolio. An enhanced set of upstream positions will be a springboard to high-grade the Combined Group's longer term portfolio, increase asset sales and reduce capital investment, thereby enhancing the Combined Group's capacity to pay dividends and undertake share buybacks.
Shell expects the Combination to generate pre-tax synergies of approximately $2.5 billion per annum (which have been reported on) and has also identified further significant opportunities.
In the near term, BG Shareholders will benefit from the dividends enjoyed by Shell Shareholders[3]. Shell today confirms its intention to pay dividends of $1.88 per ordinary share in 2015 and at least that amount in 2016.
In the medium term, all shareholders will benefit from the potential for enhanced cash flow and a continued drive to grow returns and enhance capital efficiency from the combined portfolio.
2. Based on Shell's proved oil and gas reserves calculated on an SEC basis for the financial year ended 31 December 2014 of 13,081 mboe and BG's proved oil and gas reserves calculated on a PRMS basis for the same period of 3,612 mboe. Please see paragraph 15 of Appendix 3 for further information.

3. BG Shareholders will be entitled to receive each Shell dividend for which the record date falls after completion of the Combination.

Shell expects to commence a share buyback programme in 2017 of at least $25 billion for the period 2017 to 2020[4]. Shell expects this programme to offset the shares issued under the Shell scrip dividend programme and to significantly reduce the equity issued in connection with the Combination.
Commenting on today's announcement, Jorma Ollila, Chairman of Shell said:

"This is an important transaction for Shell, accelerating the delivery of our strategy for shareholders. The result will be a more competitive, stronger company for both sets of shareholders in today's volatile oil price world.

BG shareholders will receive significant value through the premium being offered for their shares. They will become shareholders in Shell, accessing an attractive dividend policy, a share in the significant synergies and the compelling upside and enhanced operating capability of the combined group.

We believe that the combination is in the interests of both our companies and their shareholders."

Commenting on the Combination, Ben van Beurden, CEO of Shell said:

"Bold, strategic moves shape our industry. BG and Shell are a great fit. This transaction fits with our strategy and our read on the industry landscape around us.

At the start of 2014, Shell embarked on an improvement programme, including divestments and the restructuring of underperforming businesses, whilst at the same time delivering profitable new projects for shareholders. This programme is delivering, at the bottom line.

BG will accelerate Shell's financial growth strategy, particularly in deep water and liquefied natural gas: two of Shell's growth priorities and areas where the company is already one of the industry leaders. Furthermore, the addition of BG's competitive natural gas positions makes strategic sense, ahead of the long-term growth in demand we see for this cleaner-burning fuel.

This transaction will be a springboard for a faster rate of portfolio change, particularly in exploration and other long term plays. We will be concentrating on fewer themes, and at a larger scale, to drive profitability and balance risk, and unlock more value from the combined portfolios.

Over time, the combination will enhance our free cash flow potential, and our capacity to undertake share buybacks, where I expect to see a substantial increase in pace."

4. Subject to progress with debt reduction and Brent oil prices recovering towards the middle of Shell's long term planning range of $70-$90-$110 per barrel. Shell intends to buy back the cheaper of the Shell A and Shell B Shares from a Shell perspective.

Commenting on the Combination, Andrew Gould, Chairman of BG said:

"This offer represents an attractive return for BG shareholders. BG has a strong portfolio of operations including growth assets in Australia and Brazil and a highly competitive LNG business, as well as an enviable track record of exploration success. The BG Board remains confident in BG's long-term prospects under the leadership of Helge Lund. Shell's offer, however, allows us to accelerate and de-risk the delivery of this value. The structure of the offer will provide BG shareholders with an attractive premium and a substantial cash return as well as enabling them, if they wish, to participate in the benefits of the combination through the share component. For these reasons, the BG Board recommends the offer."

Commenting on the Combination, Helge Lund, CEO of BG said:

"The offer from Shell delivers attractive returns to shareholders and has strong strategic logic. BG's deep water positions and strengths in exploration, liquefaction and LNG shipping and marketing will combine well with Shell's scale, development expertise and financial strength. The consolidated business will be strongly placed to develop the growth projects in BG's portfolio. The transaction will take time to complete, during which my team and I will remain committed to BG and our shareholders, and to safely delivering our 2015 business plan."

It is intended that the Combination will be implemented by way of a court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006, further details of which are contained in the full text of this Announcement. However, Shell reserves the right to implement the Combination by way of a takeover offer (as defined in Part 28 of the Companies Act 2006), subject to the Panel's consent and the terms of the Co-operation Agreement.
The Boards of Shell and BG have agreed that BG Shareholders will continue to be entitled to receive their final dividend for 2014 of 14.37 cents (9.52 pence) per BG Share which has already been announced by BG, as well as an interim dividend in respect of the six month period up to 30 June 2015 of not more than the interim dividend in respect of the six month period up to 30 June 2014 of 14.38 cents per BG Share. In addition, should completion of the Combination occur after the record date for Shell's 2015 fourth quarter interim dividend, BG Shareholders would be entitled to receive a further BG dividend in respect of 2015 of not more than the final dividend for 2014 of 14.37 cents per BG Share. If, however, completion of the Combination occurs prior to the record date for Shell's 2015 fourth quarter interim dividend, BG Shareholders would receive that Shell dividend and would not receive a further BG dividend for 2015.
BG Shareholders will be entitled to elect to receive the share component of the Consideration in the form of Shell A Shares, as opposed to Shell B Shares, at the same exchange ratio.
Shell will also provide a Mix and Match Facility, which will allow BG Shareholders to elect, subject to off-setting elections, to vary the proportions in which they receive New Shell Shares and cash. The Mix and Match Facility will not change the total number of New Shell Shares to be issued or the maximum amount of cash that will be paid under the terms of the Combination.
The BG Directors, who have been so advised by Goldman Sachs International and Robey Warshaw LLP, consider the financial terms of the Combination to be fair and reasonable. In providing advice to the BG Directors, Goldman Sachs International and Robey Warshaw LLP have taken into account the commercial assessments of the BG Directors.
Accordingly, the BG Directors intend unanimously to recommend that BG Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions relating to the Combination at the BG General Meeting, as they have irrevocably undertaken to do in respect of their own beneficial holdings of 217,564 BG Shares representing, in aggregate, approximately 0.006% of BG's issued share capital on 7 April 2015, being the last Business Day before the date of this Announcement. Further details of these irrevocable undertakings are set out in Appendix 4 to this Announcement.
The Combination will be put to the vote of Shell Shareholders as a Class 1 transaction for Shell for the purposes of the Listing Rules. The Shell Directors consider the Combination to be in the best interests of Shell and the Shell Shareholders as a whole and intend unanimously to recommend that Shell Shareholders vote in favour of the Shell Resolutions to be proposed at the Shell General Meeting which will be convened in connection with the Combination.
The Shell Directors have received financial advice from Bank of America Merrill Lynch in relation to the Combination. In providing their advice to the Shell Directors, Bank of America Merrill Lynch has relied upon the Shell Directors' commercial assessment of the Combination.
The Combination will be subject to the Pre-Conditions set out in Appendix 1, the Conditions and certain further terms set out in Appendix 2 and to the full terms and conditions which will be set out in the Scheme Document including the sanction of the Scheme by the Court and the approval of Shell Shareholders. The Pre-Conditions and Conditions include the receipt of various antitrust and foreign investment approvals, other regulatory consents and waivers of any termination rights, pre-emption rights, rights of first refusal or similar rights in a number of jurisdictions, as further described in paragraph 8 of this Announcement.
The Scheme Document will include full details of the Scheme, together with notices of the Court Meeting and the BG General Meeting and the expected timetable, and will specify the action to be taken by Scheme Shareholders. It is expected that the Scheme Document will be despatched to BG Shareholders towards the end of 2015 or in early 2016, and no later than 28 days after the date on which the Pre-Conditions are satisfied and/or waived, as applicable, save as the Panel may otherwise permit.
It is expected that the Prospectus, containing information about the New Shell Shares, will be published at the same time as the Scheme Document is posted to BG Shareholders. It is also expected that the Circular, containing details of the Combination and notice of the Shell General Meeting, will be posted to Shell Shareholders at the same time as the Scheme Document is posted to BG Shareholders, with the Shell General Meeting being held at or around the same time as the BG Meetings.
The Scheme is expected to become effective in early 2016, subject to the satisfaction or waiver of the Pre-Conditions set out in Appendix 1 and the Conditions and certain further terms set out in Appendix 2 to this Announcement.
Summary of strategic fit and financial returns

BG is highly complementary with Shell's strategic priorities of deep water and LNG.
By applying its capabilities to the BG assets, Shell believes that, by around 2020, the Combined Group will have[5]:
two strategic growth businesses - deep water and integrated gas - that could potentially each generate $15-$20 billion of cash flow from operations per annum;
upstream and downstream engines that could potentially generate a further combined $15-$20 billion of cash flow from operations per annum in total; and
long-term positions which could potentially add around a further $10 billion of cash flow from operations per annum.
Shell expects the Combination to be mildly accretive to earnings per share in 2017 and strongly accretive to earnings per share from 2018 onwards, on a current cost of supply basis and excluding identified items[6].
Shell expects the Combination to be accretive to cash flow from operations per share from 2016[6].
The Combination would have reduced Shell's return on average capital employed by around 1.5%, on a 2014 pro-forma basis, but Shell expects the effect on return on average capital employed to be neutral from 2018, with potential for growth in returns thereafter, assuming flat oil prices[6].
Shell expects asset sales to increase and to total $30 billion for the period 2016 to 2018.
Shell's appraisal of BG is based on an intrinsic asset value assessment across a range of oil prices and on the strong cash flow growth potential of the Combined Group.
The Combined Group's priorities for cash will be (1) debt reduction; (2) dividends; and (3) share buybacks and capital investment.
5. These ranges are not intended to be capable of being aggregated to form a cash flow target for the Combined Group, and assume Brent oil prices return to around the middle of Shell's long term planning range. These statements should not be construed as profit forecasts and are not subject to the requirements of Rule 28 of the City Code.

6. Per share impacts assume Brent oil prices 2016 $67/bbl; 2017 $75/bbl; 2018-2020 $90/bbl (all on a 2014 real terms basis) and completion of the Combination in early 2016. The statements that the Combination is expected to be accretive to cash flow from operations per share and to earnings per share, or that the effect on return on average capital employed is expected to be neutral in 2018, should not be construed as profit forecasts and are therefore not subject to the requirements of Rule 28 of the Code. Such statements should not be interpreted to mean that cash flow from operations and earnings per share, or income on a clean current cost of supply basis, in any future financial period will necessarily match or be greater than those for the relevant preceding financial period.

Shell plans to pay down debt from 2016 in order to maintain a strong balance sheet and credit rating to underpin its business model.
Balance sheet gearing would have been approximately 20% for the Combined Group on a 2014 pro-forma basis.

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