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* Third-biggest oil and gas deal ever by enterprise value
* BG developing ambitious projects in Brazil, Australia andEgypt
* Oil price plunge evokes previous era of major mergers
* BG shares soar in heavy trading (Adds detail on prospects for other deals, challenges forcombined company)
By Dmitry Zhdannikov and Karolin Schaps
LONDON, April 8 (Reuters) - Royal Dutch Shell agreed to buy smaller rival BG Group for 47 billionpounds ($70 billion) in the first major energy industry mergerin more than a decade, closing the gap on market leader U.S.ExxonMobil after a plunge in prices.
Anglo-Dutch Shell will pay a mix of cash and shares that values each BG share at around 1,350 pence, the companies said.This is a hefty premium of around 52 percent to the 90-daytrading average for BG, setting the bar high for any potentialcounter-bid by a company such as Exxon, which has said it wouldalso use the downturn in oil markets to expand.
The third-biggest oil and gas deal ever by enterprise valuewill bring Shell assets in Brazil, East Africa, Australia,Kazakhstan and Egypt. BG has some of the world's most ambitiousprojects in liquefied natural gas (LNG), where demand is growingas consumers turn away from more polluting fuels such as coal.
Shell is already the world's leading LNG company and itwould get BG's capacity in LNG logistics - complexinfrastructure that includes terminals, pipelines, specialisedtankers, rigs, super coolers, regasification facilities andstorage points.
"We are seeing a gasification of energy demand. Shellclearly recognise this," said Richard Gorry, director at JBCEnergy Asia. "That said, Shell is still taking a big gamblebecause if the price of oil and gas doesn't go back up (in thenext 24 months), I would imagine this might put them in adifficult position in terms of cash flow."
BOOST TO RESERVES
Shell said on Wednesday the deal would boost its proven oiland gas reserves by 25 percent.
Stitched together by Shell CEO Ben van Beurden and BGChairman Andrew Gould, the tie-up follows a halving of oilprices since last June, putting a premium on access to provenassets rather than costly exploration. Record low interest rateshave made it easy to raise cheap funding for big deals.
"We have been scanning quite a few opportunities, with BGalways being at the top of the list of the prospects to combinewith," Van Beurden told a conference call. "We have two verystrong portfolios combining globally in deep water andintegrated gas".
Britain's BG had a market capitalisation of $46 billion atTuesday's close, Shell was worth $202 billion and Exxon, theworld's largest energy company by market value, was worth $360billion.
BG's bonds traded up strongly on the deal and its sharesclosed up 27 percent at 1206 pence. Shell shares fell 5 percentto 1982.5 pence. They were the most traded stocks across Europeon Wednesday, with $1.6 billion of BG shares changing hands and$3 billion of Royal Dutch Shell shares.
BG stock has tumbled nearly 28 percent since mid-June, whenthe slump in global oil prices began. The agreed price is around20 percent above BG's share price of a year ago.
"In buying BG, Shell is making a bold strategic bet that oilprices will recover towards the $70-90 level in the mediumterm," said Henderson Global Investors. Brent crude wastrading below $57 a barrel on Wednesday.
Barclays bank said Shell would have to persuade itsshareholders that it can control capital spending at the newcompany and show BG's portfolio can deliver the promised growthoptions beyond Brazil, "something that, in our view, has beenfar from evident of late".
One source close to the deal said a counterbid was unlikely.The source said a U.S. company such as Exxon may be doubly waryof getting into a takeover battle after the failure of drugmakerPfizer's attempted takeover of AstraZeneca lastyear.
The deal represents a windfall for Shell's adviser Bank ofAmerica Merrill Lynch. BG's advisers are Goldman Sachs and thesmaller Robey Warshaw.
BAML has underwritten a 3.025-billion-pound bridge loan thatwill be syndicated to other banks and is expected to be takenout by a capital markets raising, according to the offerdocuments.
OIL PRICE IMPACT
With BG, Shell would be the leading foreign oil company inBrazil. Analysts at investment bank Jefferies said they nowexpected Shell to surpass Exxon as the world's largest publiclytraded oil and gas producer by 2018, with output of 4.2 millionbarrels of oil equivalent per day.
Global LNG production was 246 million tonnes last year. Thenew Shell-BG group would have 18 percent of world output.
Van Beurden said the presence of two large players inAustralia, Brazil and China and the European Union might requirea detailed conversation with anti-trust authorities, but wasunlikely to lead to forced asset sales.
The halving in crude prices has created an environmentsimilar to the turn of the millennium, when large mergersreshaped the industry. Back then, BP acquired rivalsAmoco and Arco, Exxon bought Mobil and Chevron mergedwith Texaco.
"A deal of this size would certainly be getting everyoneinterested in running the ruler over potential combinations inthe natural resources sector," said Paul Gait, an analyst atBernstein Research.
But some industry watchers were reluctant to predict anotherflurry of mega-deals, saying many oil majors cannot afford toput stretched balance sheets under further pressure.
"If you're looking to the next big deal, ExxonMobil standsout as most likely to pull the trigger," said Wood Mackenzie."But don't expect a wave of late '90s-style consolidation."
Shell has long been seen as a potential buyer thanks to itshealthy cash flow and relatively low oil price breakeven.
The deal, which should generate pretax synergies of around2.5 billion pounds per year, will result in BG shareholdersowning around 19 percent of the combined group.
Last year, BG Chairman Gould hired CEO Helge Lund fromNorway's Statoil to turn around the company. Gould saidon Wednesday Lund would remain the CEO through the transition.
However, it was evident the deal was driven by Van Beurden,who took over as the CEO last year, and Gould, a veteranexecutive who previously ran oil services giant Schlumberger.
"I called Andrew up and we had a very good and constructivediscussion about the idea and it very quickly seemed to makesense to both of us," Van Beurden told a conference call. "Whathas happened in the last month, apart from it being a logicaldeal, it has also become a very compelling deal from a valueperspective,"
($1 = 0.6693 pounds) (Reporting by Narottam Medhora and Sai Sachin R in Bengaluru;additional reporting by Greg Roumeliotis and Denny Thomas,Henning Gloystein, Karolin Schaps, Kate Holton, Chris Mangham,Freya Berry, Silvia Antonioli and Vikram Subhedar; writing byDenny Thomas and Tom Pfeiffer; editing by Keith Weir and DavidStamp)
