Royal Dutch Shell announced last Thursday it has agreed to buy oil and gas exploration firm BG Group in a deal that values the business at £47 (US$70) billion. BG Group is an international exploration and production liquefied natural gas company active in 24 countries. LNG is an area in which Shell has invested tens of billions of dollars in recent years.

Shell's main reasons for wanting to acquire more LNG business are (1) its use is expected to grow in Asia, especially in China, as it tries to wean itself off coal. BG is a large supplier of LNG to China; (2) it is used for deepwater oil drilling in areas such as the Gulf of Mexico and off of Nigeria.

The acquisition of BG also would give Shell a stronger position in Brazil. Shell estimates that the combined company would potentially increase production in Brazil tenfold to 550,000 barrels of oil and gas per day. Shell says the deal would increase its proven oil and gas reserves by 25% and increase production by 20%.

"If you want to be a leader in deep-water [drilling], you have to have more exposure to Brazil," Shell C.E.O. Ben van Beurden said in a TV interview with CNBC.

Shell plans to pay for the acquisition with a combination of cash and stock. BG shareholders would end up owning 19% of the combined company. The acquisition still requires shareholder and regulatory approval.

The deal comes after Shell scaled back its ambitions to become a major producer of shale gas. Shell and its other big rivals have largely failed to benefit from the boom after acquiring shale assets that turned out to be unprofitable. Shell has been unloading some of those fields, and pulling back from shale development in Europe and China.

BG Group is the UK's third largest energy company, and currently employs about 5,200 people in 24 countries. It was created in 1997 when British Gas demerged into two separate companies: BG and Centrica. BG took control of exploration and production while Centrica took charge of the UK retail business of the former British Gas. In 2000, BG split into BG Group and Lattice Group.

BG's market capitalisation stands at £31 billion after a 20% fall in its share price over the past year. In comparison, Shell's market capitalisation is £177 billion.