Royal Dutch Shell to acquire BG

April 8: How will the oil rout reshape the industry for the long term? Plus, the Bay gets a boost from Saks, and chicken wing economics

MORNING-PLAYBOOK-STORYWhat long-term changes are in store for the energy industry today?

At least one, as Royal Dutch Shell confirmed this morning that it will acquire the British energy company BG. Could this mean a new phase of energy-industry mergers and acquisitions, as the industry attempts to ride out the drop in oil prices? Despite sudden cuts and major scalebacks to projects, it’s not entirely clear that most Canadian companies even have a long-term plan in place.

This morning, oil is currently above $52.74, after the TSX had another strong day yesterday, with the banks, in particular, pushing the TSX/S&P Composite up by 88 points.

Today, Finance Minister Joe Oliver will give a speech in Toronto, in which he’s expected to address the upcoming federal budget. There will also be minutes from the Fed’s latest meeting—where they dropped the “patient”—as the Bank of Japan’s meeting announces it’s staying steady on monetary policy as it fights the threat of deflation. The Bank of England’s monetary policy meeting also begins today, and there are retail numbers expected from the eurozone.

Shell to acquire BG. This morning, Royal Dutch Shell confirmed a deal to take over BG Group, which is particularly strong in liquefied natural gas, for $68 billion. The FT reported that Shell said the deal would add 25 per cent onto its reserves, and 20 per cent to annual production—and would also take some of the pressure off to expand its own reserves via exploration, including off the north coast of Alaska. It also means more access to offshore drilling in Brazil and gas in Australia. The deal also has the benefit of evening out the impact of falling oil prices across both companies’ operations, and could be one sign of a comeback of big energy mergers & acquisitions. Meanwhile, in Canada, as energy companies start cutting staff and prospects for major projects in LNG look uncertain, a study by Ernst & Young found that nine out of 10 companies have very limited or no long-term contingency plans for a major drop in oil prices, according to the Financial Post. One Ernst & Young executive said the companies surveyed are in a “valley of despair,” with sentiment that’s worse than during the financial crisis.

Greece is staring down a deadline. Tomorrow, Greece will face the prospect of paying a 450-million-euro loan back to the IMF, one of several repayments for the cash-strapped country that are causing hand-wringing across the eurozone. The country has insisted it can pay the bill, but it hasn’t been entirely convincing. In addition to pooling cash from areas of the state as diverse as the metro system and the utilities companies, it has also suddenly come up with a bill for 279 billion euros in reparations for the German occupation of the country in the Second World War (now a running topic of debate, and one that Germany has largely rejected, saying it made reparations in the 1960s). Making things even more interesting are Prime Minister Alexis Tsipras’s visit today to Moscow to meet with Russian President Vladimir Putin, where the Greek leader could—so the speculation goes—play a little political hardball to try to hint that Greece could find support elsewhere without the EU’s help. I’ll leave it to you to decide whether that’s likely or not (but Bloomberg has an interesting poker-themed video on the prospect). Even if Greece can make it through this debt payment, it has several more to come this spring, and the country’s lenders are already highly dependent on emergency liquidity from the European Central Bank, as deposits in Greece have fallen sharply in the last several months. Cue as many “Grexit” speculation pieces as you can handle.

When Hudson’s Bay met Saks. Hudson’s Bay Company posted first-quarter profits yesterday, with a net income of $111 million, almost quadrupled from last year. The jump was credited to the department store’s acquisition of American chain Saks, in both discount sales—including the Saks Off 5th discount chain—and an increase in online sales, which were up by more than a third. With those stores based in the U.S., the falling loonie would have given HBC a bit of a boost, too. Several of the Saks discount brand stores are due to come to Canada next spring, along with as many as two out of seven planned Saks department stores.

The wild world of selling chicken wings (and beer, and sports). Bloomberg has this story of the Buffalo Wild Wings chain, and the secret to churning out massive orders of fried, sauce-drenched chicken on game night, even as American sit-down chains saw their earnings get hollowed out during the recession, and fast food behemoths have struggled with changing tastes. Wing night also requires grappling with another fundamental shift, as the cost of chicken itself has fluctuated and, lately, increased. Bonus points for introducing a totally new phrase to those not acquainted with the world of sports-bar financing: “commodity wing prices.”

Need to know:
TSX:15,188.84 (+88.19), Tuesday
Loonie: 79.97, (+0.17), Tuesday
Oil (WTI): $52.74, Wednesday (6 a.m.)