Royal Dutch Shell said on Wednesday it had agreed to buy BG Group for £47 billion pounds ($70 billion) in a bid to close the gap on the world's biggest oil major, US ExxonMobil.

In a joint statement, the two firms said that as part of the recommended deal Shell would pay a mix of cash and shares that would value each BG share at around 1,350 pence. It said this represented a premium of around 52 per cent to the 90-day trading average.

The deal, which should generate pre-tax synergies of around £2.5 billion per year, will result in BG shareholders owning around 19 per cent of the combined group.

Setting out its longer-term thinking, the two groups said Shell would pay a dividend of $1.88 per ordinary share in 2015 and at least the same amount in 2016.

Anglo-Dutch Shell also expects to start a share buyback programme in 2017 of at least $25 billion for the period 2017 to 2020.

Shell said the deal would boost its proved oil and gas reserves by 25 per cent, and give it better prospects in new projects, particularly in Australia LNG and Brazil deep water.

Shell also said it planned to increase asset sales to $30 billion between 2016-2018 on the back of the deal. The company said in January it was selling $5-6 billion worth of assets per year. -Reuters

In the joint statement, the two firms said that as part of the recommended deal Shell would pay 383 pence in cash and 0.4454 Shell B shares for each BG share.

The deal will result in BG shareholders owning around 19 per cent of the combined group.

Shell has a market capitalization of $202 billion and Exxon is worth $360 billion.

Oil prices have halved since the middle of 2014 due to a shale oil boom in the United States and a decision by Saudi Arabia not to cut production - creating an environment similar to the early 2000s when many super-mergers took place.

Back then, oil major BP acquired rival Amoco and Arco, Exxon bought Mobil and Chevron merged with Texaco.

A lot of bankers have argued, however, that the era of easy super-mergers was over since then and the number of fresh acquisition targets was limited.

BG, which has ambitious production growth targets and multi-billion dollar projects in Brazil, East Africa, Australia, Kazakhstan and Egypt, has long been seen as a rare potential acquisition target, including by cash-rich rivals such as Shell or Exxon.

However, the UK-based producer has its problems which could complicate any transaction, bankers familiar with BG's operations have said.

"Brazil is certainly a drag on any transaction," one of the London-based bankers said, referring to the ongoing investigation in Brazil into corruption charges involving state champion Petrobras.

Including BG's net debt of about $12 billion, any transaction would be the biggest this year and fourth largest oil and gas deal globally since 1996.

BG has been also plagued by problems in Egypt and took a $6 billion writedown recently.

That forced the company to rush in former Statoil A/S CEO Helge Lund in February, nearly a month ahead of schedule.

Last week BG poached two officials from Statoil, including Katie Jackson as vice president for global strategy and business development. Jackson had been responsible for mergers and acquisitions at Statoil under Lund's leadership. – Reuters