Oil giant Royal Dutch Shell is to buy exploration firm BG Group in a deal valuing the British business at about £47billion.

The companies unveiled details of the mega merger – the biggest in the industry for several years – in a statement to the London stock exchange.

The swoop by Anglo-Dutch group Shell comes as the oil industry looks to become more efficient and reduce costs in the face of falling energy prices.

BG Group, which employs about 5,200 staff in 24 countries, has key growth projects in Brazil and Australia. The natural gas producer was created in 1997 when British Gas demerged into two separately-listed companies, with Centrica having responsibility for the retail side of the business.

BG issued a statement last night confirming speculation that it was in talks with Royal Dutch Shell. Today, it confirmed its board had backed an offer from Shell valuing the business at 1367p a share.

The proposed cash and shares deal will leave BG shareholders owning about 19% of the combined company.

The addition of BG will increase Shell’s proved oil and gas reserves by 25% and boost production by 20%, as well as provide Shell with stronger positions in new oil and gas projects, particularly in Australia liquefied natural gas (LNG) and in Brazil.

The deal will generate synergies of 2.5bn US dollars (£1.7bn) a year as well as present other “further significant opportunities”.

Shell said the combination created a more competitive, stronger company for both sets of shareholders “in today’s volatile oil price world”.

Chief executive Ben van Beurden added: “Bold, strategic moves shape our industry. BG and Shell are a great fit. This transaction fits with our strategy and our read on the industry landscape around us.”

BG shares jumped by more than a third today, returning the FTSE 100 Index stock to a level last seen at the start of 2014.

Its shares have fallen in line with oil prices and after it slashed production targets due to continued problems in Egypt, where too much of its gas has been diverted into the domestic market instead of being exported.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “Whether precipitated by the falling oil price or BG’s more recent production woes, Shell has acted opportunistically, as it previously implied it might if the occasion arose.”

He added that the deal could prompt other companies who have been running the slide rule over potential targets to make their move.

BP shares were 4% higher today but Royal Dutch Shell fell by 6%.