Oil giant Shell reported on January 31, 2017, that the company 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 billion, and a payment of up to $600 mln between 2018-2021 subject to commodity price, with potential further payments of up to $180 mln 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 today, 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.
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.
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 today also announced the sale of Thai offshore assets for $900 million to Kuwait’s KUFPEC.
Christian Stadler, of Warwick Business School, is a Professor of Strategic Management, and wrote 2 books featuring Shell after spending 4 years inside the company researching it. He has also researched the oil and gas industry for more than 15 years.
Professor Stadler said: This is part of a long-term sell-off. They’re $12.5Bn through a plan to sell assets totalling $30Bn which arises partly from their BG acquisition and partly from a need to shift and focus on things they are best placed to do.
It is a common approach for such large companies to look at concentrating on their bigger resources and selling off their smaller ones. Aside from this, it can also be about expertise in a region, as political aspects and appropriate knowledge become necessary. In the case of the North Sea, it has been a struggle since the oil crisis.
On a wider scale, this could be part of a larger play here as we move towards an era of protectionism. Global companies will be looking more cautiously at which countries to invest in as national borders become more real again and internationalism becomes more difficult, forcing more scaling down.
Shell is better positioned than most in this regard, however, as they have a heavily decentralised structure so can take things on a country by country basis.
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