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Shell gambles on rocky Brazil, Petrobras with BG bid

Royal Dutch Shell's $69 billion proposed purchase of BG Group will increase its exposure to Brazil at a time when the country appears to be destabilizing politically and stagnating economically.

BG Group has invested over $8 billion in Brazilian oil and gas since 1994 and operates in several locations along the coast of Brazil and estimates its production capacity in the country at 2.6 million barrels of oil equivalent per day.

Read MoreShell launches $69B cash-and-share bid for BG Group

"Shell will be taking on a portfolio of potentially riskier assets," said Matthew Beesley, head of global equities at Henderson Global Investors, in a research note on Wednesday, after Shell's bid for BG was confirmed.

"BG shares had fallen by nearly a third in the last year prior to today's announcement, as the company's exposure to a series of troubled projects in Brazil and costs associated with the launch of a new Liquefied Natural Gas (or LNG) project in Australia weighed on the shares."

Barrels are filled with oil at a Royal Dutch Shell lubricants blending plant in Torzhok, Russia.
Andrey Rudakov | Bloomberg | Getty Images
Barrels are filled with oil at a Royal Dutch Shell lubricants blending plant in Torzhok, Russia.

Shares of FTSE 100-listed BG rocketed to close around 28 percent higher on the London Stock Exchange after the cash-and-shares bid was announced. Shell B shares ended around 8.5 percent lower.

In a press release, Shell said the deal would add 25 percent to its proven oil and gas reserves, and provide "enhanced positions in competitive new oil and gas projects, particularly in Australian LNG and Brazil deep water."

However, there are concerns that the new assets could leave Shell vulnerable to the fallout from the massive corruption scandal and subsequent mass protests associated with semi-public Brazilian energy giant Petróleo Brasileiro (Petrobras).

Read MoreShell-BG deal just the start of energy M&A: Analyst

Groups calling for the impeachment of President Dilma Rousseff because of her alleged involvement in the Petrobras debacle are organising another major demonstration for this Sunday, at which numbers are expected to match or exceed the 2 million that protested nationwide on March 15.

Meanwhile, militant labor unions and landless movements—which fight for access to land for poor rural workers—are expected to hold rallies on Wednesday, and in the coming weeks, to express support of Rousseff and her government.

A Petrobas platform at the Brasfels shipyard in Angra dos Reis, about 115 miles west of Rio de Janeiro.
Sergio Moraes | Reuters
A Petrobas platform at the Brasfels shipyard in Angra dos Reis, about 115 miles west of Rio de Janeiro.

"The aggressive rhetoric of pro-government groups in the face of growing anti-government protests highlights increased political polarisation in Brazil," said Carlos Cardenas, deputy head of Latin America analysis at IHS Country Risk, in a research note on Wednesday.

"Growing discontent with rampant corruption and austerity measures and President Dilma Rousseff's plummeting popularity adds to Brazil's ongoing political crisis…Forthcoming fresh anti-government protests increase the risk of business disruption and political violence, particularly if political leaders adopt an uncompromising approach."

Shell CEO Ben van Beurden defended the purchase.

"By and large, if you want to be a highly profitable, top, leading company in the deepwater, you have to have more exposure to Brazil," he told CNBC on Wednesday.

Workers gather at a protest in front of Petrobras headquarters, as military police walk by, Feb. 4, 2015, in Rio de Janeiro.
Getty Images
Workers gather at a protest in front of Petrobras headquarters, as military police walk by, Feb. 4, 2015, in Rio de Janeiro.

Van Beurden said there were "some very difficult" headlines around Petrobras, but said he had taken a long-term view on the Brazilian company in bidding for BG.

"Petrobras is fundamentally a very, very competent company. It will come through this as a much stronger company," he told CNBC.

"We have worked alongside Petrobras already, as has BG, and we will be the premier IOC working alongside Petrobras in an incredibly exciting upstream province. So therefore, I'm very, very confident that this will be a very important part of the portfolio going forward."

Read MoreShell's BG deal: The biggest oil price bet yet?

Henderson's Beesley also advised investors to look to the long-term.

"As owners of BG, we have long believed that investors were placing too much emphasis on some of these shorter-term issues and failing to fully understand the longer-term potential of these assets," he said.

"Our fair value for the stock was around £13-14, which is roughly the price at which the shares are being acquired by Shell, but the significant fall in the oil price had reduced the perceived value of these key assets."