Royal Dutch Shell says it has agreed to buy oil and gas exploration firm BG Group in a deal that values the business at £47bn.
The two firms say they have reached agreement on a cash and shares offer which gives investors a 50% premium on BG Group’s share price on 7 April.
The deal could be one of the biggest of 2015 and is also the first big merger between energy companies in a decade.
It could produce a company with value of more than £200bn ($296bn).
Shell’s £177bn market capitalisation dwarfs that of BG, which now stands at £31bn after a 20% fall in its share price over the past year.
BG Group is the UK’s third largest energy company. It was created in 1997 when British Gas demerged into two separate companies: BG Group and Centrica.
BG Group took control of exploration and production while Centrica took charge of the UK retail business of the former British Gas. BG currently employs about 5,200 people in 24 countries.
Shell said BG Group shareholders would enjoy higher dividends, as it confirmed its intention to pay its existing shareholders $1.88 per ordinary share this year.
The oil giant also said it expected to commence a share buyback programme in 2017 of at least $25bn.
The deal comes at a time of uncertainty for oil and gas companies. In the past six months the price of oil has fallen by about 50%. Meanwhile, analysts have warned that investment in North Sea oil exploration has all but dried up, threatening the entire industry.
Last month, the Chancellor, George Osborne, lowered the supplementary corporation tax levied against oil companies that operate in the North Sea.
BG Group warned in February that it would write down the value of its oil and gas assets by nearly £6bn ($9bn) due to the oil price slump.
Similarly, Shell announced in January that it would be cutting spending by nearly £10bn over the next three years.