Royal Dutch Shell Plc (IW 1000/2), looking to pare debt swollen by last year’s acquisition of BG Group Plc, accelerated its drive to shed assets on Tuesday by agreeing to the sale of fields in the North Sea and Thailand for as much as $4.7 billion.
The disposals include the sale of about half the company’s North Sea oil and gas assets for as much as $3.8 billion to Chrysaor Holdings Ltd., Shell said. Earlier Tuesday, Europe’s largest oil producer agreed to sell its stake in an offshore Thai gas field to a unit of Kuwait Petroleum Corp. for $900 million.
Shell piled up borrowings following its biggest-ever acquisition, the $54 billion purchase of BG, and needs to hit disposal targets to stave off credit rating reviews and maintain dividend payouts. While Chief Executive Officer Ben van Beurden has made debt reduction a top priority, Shell missed its target for asset sales last year as low oil prices depressed valuations.
“The sale helps Shell focus on newer growth projects in the North Sea and gives away smaller, older fields, and this makes it more focused,” said Iain Armstrong, a London-based analyst with Brewin Dolphin Ltd., which owns oil company shares. “It’s money in the bank for Shell, which helps reduce debt. They are well on their way to meet the big $30 billion target now.”
Shell rose 0.9% to 2,266 pence as of 10:46 a.m. in London trading, paring the stock’s loss to 3.7% this year.
Shell had almost $78 billion of net debt at the end of September. Net debt to capital, also called gearing, was at 29.2 percent compared with 12.7 percent a year earlier, and is among the highest for European oil companies.
"The deal with Chrysaor enables us to continue to strengthen and optimise our UK portfolio", Andy Brown - Shell Upstream Director. pic.twitter.com/6SVqcPtZkW— Shell (@Shell) January 31, 2017
“This deal shows the clear momentum behind Shell’s global, value-driven $30 billion divestment program,” Chief Financial Officer Simon Henry said in the statement. “It is also consistent with Shell’s strategy to high-grade and simplify our portfolio following the acquisition of BG.”
The deal with Chrysaor includes an initial consideration of $3 billion and a payment of up to $600 million between 2018 and 2021 subject to commodity prices, with potential further payments of up to $180 million for future discoveries. Shell retains a fixed liability of $1 billion for any decommissioning costs associated with the North Sea assets, the company said.
“Shell clearly wanted to be seen to make a material disposal but also this vehicle has been structured to be a U.K. champion,” Chrysaor CEO Phil Kirk said on a conference call. “We are looking at the top spot in the U.K.”
Kirk said Chrysaor is looking at further acquisitions in the North Sea as more production assets become available.
“We are looking at growth and activity,” he said. “This is not about cost cutting. This is not about winding down.”
The package of assets consists of Shell’s interests in Buzzard, Beryl, Bressay, Elgin-Franklin, J-Block, the Greater Armada cluster, Everest, Lomond and Erskine, plus a 10% stake in Schiehallion, Shell said. The fields represent total production of about 115,000 barrels of oil equivalent in 2016, compared with the company’s total North Sea output of 211,000.
The deal with Chrysaor is subject to partner and regulatory approvals, with completion expected in the second half of 2017. Shell will provide Chrysaor with as much as $400 million of junior debt financing. The transaction’s effective date is July 1, 2016.
Bank of America Corp. advised Shell on the deal, while BMO Capital Markets was financial adviser to Chrysaor.
Shell sold its 50% stake in a petrochemical joint venture in Saudi Arabia to Saudi Basic Industries Corp. for $820 million earlier this month. It’s also considering a sale of its stake in a Malaysian liquefied natural gas export plant, which could fetch more than $1 billion, people familiar with the matter said in October.