London - Royal Dutch Shell, looking to pare debt swollen
by last year’s acquisition of BG Group, 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, 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
CEO 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 percent to 2,266 pence as of 10:46 a.m. in
London trading, paring the stock’s loss to 3.7 percent 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.
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“This deal shows the clear momentum behind Shell’s
global, value-driven $30 billion divestment program,” CFO 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.”
North Sea
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 UK champion,”
Chrysaor CEO Phil Kirk said on a conference call. “We are looking at the top
spot in the UK”
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.”
Debt financing
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 percent 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 advised Shell on the deal, while BMO
Capital Markets was financial adviser to Chrysaor.
Shell sold its 50 percent stake in a petrochemical joint
venture in Saudi Arabia to Saudi Basic Industries 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.