* Rapid rise in crude oil price raises valuation question
* BG shares tend to rise faster when oil prices recover
* Shell CEO visits Trinidad, Brazil as regulatory approvalsloom
By Dmitry Zhdannikov, Sinead Cruise and Ron Bousso
LONDON, April 29 (Reuters) - Rising oil prices are puttingRoyal Dutch Shell under pressure to execute itslandmark $70 billion deal to buy rival BG as soon aspossible before investors in BG start to take a more criticallook at the terms.
Announced three weeks ago, the deal was seen as a bold betby Shell on the oil price recovering to $80-$90 per barrelwithin three years, justifying a 50 percent premium theAnglo-Dutch giant agreed to pay for BG in the biggest oil mergerof the decade.
The cash and share deal followed a relatively low oil priceof around $55 per barrel during the first three months of 2015.
That means the conversion rate was arguably more favourablefor Shell shareholders as its stock is more resilient duringperiods of cheaper oil. BG stock tends to perform better whenthe oil price recovers because it eases concerns over thedevelopment of expensive projects, such as in Brazil and EastAfrica.
Since the cash and stock deal was first discussed by Shelland BG's executives over a phone call in mid-March, the price of oil has risen by 25 percentto $65 per barrel.
Given that the deal was based on the average share price ofBG stock in the three months to April 7, BG's shareholders riskfeeling they are not getting full value for that oil bounce.
"The maths would suggest that were the oil price at or above$80 then Shell would be snaring BG for a very attractive price,"said Matthew Beesley, head of global equities at Henderson,which has $81 billion under management including BG's stock.
"While the total determination is of course dependent on thelevel of Shell shares at the time of issuance to BGshareholders, above $80 its not inconceivable that BGshareholders could start to agitate for a higher bid or indeed acompeting bid," added Beesley.
BG investors will receive 383 pence in cash and 0.4454 ShellB class shares for each of their BG shares. At current prices,that values BG shares at around 13 pounds, a premium of around12 percent to where they now trade.
Shell, which reports its first quarter results on Thursday,declined to comment.
ANTI-TRUST OBSTACLES
Ivor Pether, senior fund manager at Royal London AssetManagement, which has $82 billion under management includingShell stock, said he believed that even at $75-$80 per barrelthe deal worked for Shell both strategically and financially.
"If the oil price shot up to that level while the deal wascompleting it could prompt some debate about the value beingoffered to BG holders. But you would have to believe the oilprice rise was here to stay," he said.
"I don't expect major regulatory hurdles, but the timetableisn't clear yet," Pether said adding that Shell needs clearancefrom anti-trust authorities in Brazil, the EU, Australia andChina before it can issue offer documents to BG's shareholders.
Shell has said it does not expect major obstacles inobtaining anti-trust clearance but has indicated it could extendinto 2016 given the complexity of talks.
"With CEO Ben van Beurden loudly espousing the strategicrationale of the deal and the role it can have in foistingchange upon Shell, they'll be looking to get it approved byregulators and closed as soon as they can - just in case," saidBeesley.
Van Beurden is determined to make Shell a mega-player andthe merger with BG will allow Shell to overtake its top rivalU.S. ExxonMobil as the largest hydrocarbon producer asearly as 2018 thanks to new huge fields in Brazil and Australia.
Van Beurden has already travelled to Brazil, where he metwith the country's leadership as well asTrinidad, where BG has large gas facilities.
China and Australia will be next on the agenda as the Shellleadership is perfectly aware of the pressures the rising oilprice has created, according to industry and banking sources.
Back when the deal was first discussed, it wasn't only theoil price but several other factors, which helped Shell persuadeBG's board it was the right deal.
"The stars really aligned back in March," one senior sourcefamiliar with the discussions said.
Several days before Van Beurden called BG's veteran chairmanAndrew Gould to offer the deal, BG's stock fell heavily on newsthat rival Portuguese firm Galp saw delays to projects in Brazilbecause of an ongoing corruption probe.
However, in the past few weeks the general mood in the oilmarket has improved, with most industry watchers saying pricescould rise further from now on. (writing by Dmitry Zhdannikov; Editing by Keith Weir)
BP (BP.)
