Fitch Thinks Shell-BG Merger Could Set Off M&A 'Wave'

Royal Dutch Shell plc (ADR) (NYSE:RDS.A) $70 billion deal to buy BG Group plc (ADR) (OTC: BRGYY) may set off a spate of mergers in the oil patch, Fitch Ratings said Thursday.

"Shell's competitors are likely to also look for partners, so they are not at a disadvantage when the cycle turns," according to Fitch, which is jointly held held by Fimalac SA (OTC: FMLCF) and Hearst Corp.

The recent fall in oil prices has dragged down the valuations of energy companies, making deals more attractive.

Fitch singled out an opportunity for larger companies to enter or consolidate their positions in U.S. shale oil.

Related Link: Shell CEO: Here's Why We're Acquiring BG Group

"While some have been burned by shale before, a longer track record of shale oil development combined with weaker valuations and potentially distressed companies may make these tempting targets," Fitch said.

Shell's deal is focused on BG's liquefied natural gas business and will be paid mainly in shares, with a $20 billion cash component.

Fitch put Shell's 'AA' rating on Rating Watch Negative Thursday and said a moderate deterioration in its financial profile is possible after the acquisition is complete.

"The enhancement of Shell's business profile may not fully offset any deterioration of credit metrics," Fitch said.