Shell sells North Sea oil assets to reduce debt

Royal Dutch Shell has struck deals worth up to $4.7bn to sell offshore oil and gas assets in the North Sea and Thailand, adding momentum to the debt-reduction programme launched after its $50bn takeover of BG Group.

The Anglo-Dutch group said on Tuesday it had agreed to sell a package of UK North Sea assets to Chrysaor, a small British company backed by EIG Partners, a US private equity company, for up to $3.8bn.

It also added another $900m to the kitty through the sale of its stake in the Bongkot gasfield in Thailand to Kuwait Foreign Petroleum Exploration Company.

Together, the sales mark the biggest advance so far in Shell’s efforts to raise $30bn from disposals by the end of next year to reduce a debt pile which reached almost $80bn after completion of the BG deal last year.

Simon Henry, Shell’s chief financial officer, said the transactions showed “clear momentum” behind efforts to simplify the group’s sprawling portfolio, adding to a spate of recent deals from shale resources in Canada to refining assets in Japan.

The Chrysaor deal is the biggest in the North Sea for years and includes an initial consideration of $3bn and a payment of up to $600m between 2018-2021 subject to commodity prices, with potential further payments of up to $180m for future discoveries.

The package consists of Shell’s interests in nine oil and gasfields — Buzzard, Beryl, Bressay, Elgin-Franklin, J-Block, Greater Armada, Everest, Lomond and Erskine — as well as a 10 per cent stake in BP’s Schiehallion field west of the Shetland Islands.

The assets accounted for production of 115,000 barrels per day in 2016, just over half Shell’s total output of 211,000 barrels per day from the UK North Sea. On completion of the deal, around 400 staff are expected to transfer to Chrysaor.

Shell said it would retain a fixed liability of $1bn for the future cost of decommissioning the fields, with Chrysaor footing the rest of the estimated $3.9bn bill. Decommissioning liabilities have in the past been one of the biggest deterrents to dealmaking in the North Sea.

Andy Brown, Shell’s upstream director, said: “Shell has a long and proud history in the UK North Sea, to which we remain committed. This deal complements the great strides we have made over the last two years in improving the competitiveness of our UK upstream business.”

He said the deal was “a vote of confidence in the UK North Sea” that would “deliver value to Shell, Chrysaor and the UK as a whole, enabling us to continue to strengthen and optimise our UK portfolio and providing a springboard for Chrysaor to bring new investment and growth into the basin”.

Mr Henry added: “Importantly, the value here represents a profit against the book values of the assets, and a break-even oil price above that for the BG acquisition.”

Shares in Shell rose slightly to £22.56 after the news on Tuesday morning.

Together the North Sea and Thai deals will take the running total from Shell’s disposals programme to around $10bn. Until now most of the proceeds had come from downstream businesses such as refineries and chemicals plants.

But Tuesday’s divestments suggested upstream production and exploration assets were becoming easier to sell after the partial rebound in oil prices from a two-and-a-half year slump.

Bankers and industry executives hope the Shell deal will unlock further mergers and acquisitions in the North Sea as the stabilising oil price attracts more private equity interest. Other assets up for grabs include a package of oil and gasfields owned by Engie, the French utility, which has held talks with Neptune, a UK company backed by private equity firms Carlyle Group and CVC Capital Partners, according to people involved in the process.

The North Sea — one of the world’s oldest and highest-cost offshore oil basins — was plunged into crisis by the collapse in crude prices in 2014 and many larger producers are looking to reduce their exposure in favour of more profitable regions. However, the Chrysaor deal shows that some investors still see moneymaking opportunities in UK waters.