Shell selling North Sea assets for up to $3.8 billion

Oil giant Shell has agreed to sell “a package” of UK North Sea assets to Chrysaor for a fee of up to $3.8 billion, as part of its previously announced $30 billion divestment program.

The initial consideration to be paid by Chrysaor has been set at $3.0 billion, and a payment of up to $600m between 2018-2021 subject to commodity price, with potential further payments of up to $180m for future discoveries.

Chrysaor, the UK oil and gas independent, will buy Shell’s interests in Beryl, Bressay, Buzzard, Elgin-Franklin, Erskine, Everest, the Greater Armada cluster, J Block, Lomond, plus a 10% stake in Schiehallion.

In a statement issued on Tuesday, the buyer said it would, on completion of the acquisition, become one of the largest producers of oil and gas in the UK.

The assets being acquired produced 115,000 barrels of oil equivalent per day (boepd) in 2016. The redeveloped Schiehallion field is expected to add additional production when it is back onstream in 2017. Current unit operating costs across the portfolio are under $15 per barrel, Chrysaor said.

The transaction is expected to comprise around 350 million barrels of oil equivalent proven and probable (2P) reserves as at the transaction effective date of July 1, 2016.

Shell employees supporting the assets will enter into consultation with a view to transferring to Chrysaor.

“Subject to consultation, around 400 employees are anticipated to transfer and the skills, expertise and knowledge that they bring with them will represent a major value-add for Chrysaor as it looks to realize its North Sea growth ambitions. Chrysaor will be maintaining the current terms and conditions of staff who transfer from Shell,” the buyer said.

Phil Kirk, Chief Executive of Chrysaor, said: “Chrysaor is acquiring a high quality package of assets which combine low cost production, a substantial reserves and resources base with strong cash flows and a highly competent and skilled workforce.  These assets, combined with our own experience and the outstanding team who will transfer from Shell, provide an excellent platform for change and growth in the North Sea. We look forward to working with Shell, with our future colleagues and other stakeholders to complete this transaction.

Shell’s total UK North Sea production during 2016 was around 211kboe/d. Following completion, Shell said it would retain “a significant, more focused and strengthened” presence in the UK North Sea, with production from the Schiehallion redevelopment and Clair Ridge project expected to come onstream.

Andy Brown, Shell’s Upstream Director, said: “This deal complements the great strides we have made over the last two years in improving the competitiveness of our UK upstream business.

“We believe this deal is a vote of confidence in the UK North Sea and offers proof that the industry’s increasing competitiveness, and improvements to the fiscal and regulatory regime, are starting to produce positive results. It will 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.

Simon Henry, Shell’s Chief Financial Officer, said: “This deal shows the clear momentum behind Shell’s global, value-driven $30bn divestment programme. It builds on recent upstream divestments in the Gulf of Mexico and Canada.”

Apart from the UK North Sea divestment, Shell on Tuesday also announced the sale of Thai offshore assets for $900 million to Kuwait’s KUFPEC.

Offshore Energy Today Staff

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