Big changes are under way at Royal Dutch Shell (LSE: RDSB). If you believe the bull case, the £36bn BG acquisition will help Shell become one of the top global players in liquefied natural gas and deepwater oil. This should help generate reliable long-term profits, funding generous dividends and share buybacks.

If you hold a more bearish view, you might say that Shell has splashed too much cash on a set of resources that won’t make any money unless the price of oil doubles.

As a Shell shareholder, I have a keen interest in this deal. In this article I’ll explain why I believe it probably will succeed, and could provide a great buying opportunity.

Is Shell cheap?

This week’s final results from Shell showed a dramatic 87% drop in full-year profits, which fell from $14.9bn to $1.9bn. However, Shell’s underlying earnings were broadly in line with expectations, at $1.69 per share. Much of this year’s fall in profits was the result of $8bn of non-cash writedowns on the value of the firm’s oil and gas reserves.

However, Shell’s cash flow was more reassuring. I estimate that Shell generated $5,661m of free cash flow in 2015 after tax and interest payments. That’s only a 59% fall from the 2014 figure of $13,907m — a much smaller drop than the 87% decline in reported profits.

Shell has also committed to maintaining its $1.88 per share dividend for another year, giving a yield of 8.6%. Although yields this high are often risky, Shell’s net gearing is only 14%. The firm can afford to use debt to subsidise the dividend for a short period if required.

How will BG fit in?

Shell boss Ben van Beurden had to push quite hard to persuade shareholders to approve the BG offer. Because of this, we already know that Shell believes it can achieve pre-tax savings of at least $2.5bn per annum from 2018. We also know that Shell expects to sell $30bn of assets between 2016 and 2018, as it restructures both companies’ portfolios.

Shell also hopes to spend $25bn on share buybacks between 2017 and 2020, which would have the effect of buying back the majority of the new shares issued to buy BG. However, market conditions could make this hard to afford. How dilutive is the BG deal without a buyback?

BG’s underlying earnings per share for 2015 were $0.49. This is equivalent to 29% of Shell’s underlying earnings for 2015, which were $1.76.

The new shares being issued by Shell will only increase its share count by 23%. As this is less than the contribution made by BG’s earnings, I estimate that buying BG won’t dilute Shell’s earnings per share, which is good news.

Indeed, I’m fairly confident that in three-to-five years, the Shell-BG deal will look like a smart move and will be delivering results for shareholders.

Near-term profit potential?

Personally, I expect the price of oil to start to recover in the next 12 months. If I’m right, then Shell’s share price could rise sharply when this happens, as analysts recalibrate their earnings forecasts.

At today’s price of £15 per share, I think Shell shares represent a good long-term income buy, with the added potential for capital gains.

Of course, I may be wrong.

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Roland Head owns shares of Royal Dutch Shell. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.