Shell sells $3.8bn of North Sea assets to Chrysaor

August 2017 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

August 2017 Issue

In a transaction worth approximately $3.8bn, multinational oil & gas company Royal Dutch Shell plc has agreed to sell a package of its UK North Sea assets to oil exploration firm Chrysaor.

The package of assets to be sold consists of Shell’s interests in Buzzard (21.73 percent), Beryl (39.4 percent), Bressay (18.4 percent), Elgin-Franklin (14.1 percent), J-Block (30.5 percent), the Greater Armada cluster excluding Gaulpe (76.4 percent), Everest (100 percent), Lomond (100 percent) and Erskine (32 percent), plus a 10 percent stake in Schiehallion (Shell will retain a 45 percent stake).

Based on the initial consideration received, Shell expects to record an accounting gain on sale against the values of both the Shell and former BG Group plc (acquired by Shell in 2016) assets included in the package.

The package represents total production of some 115kboe/d (Shell share) in 2016. Shell’s total UK North Sea production during 2016 was around 211kboe/d. Following completion, Shell will 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.

The total sale price comprises three key elements: (i) an initial consideration of $3.024bn; (ii) up to $600m contingent on Brent oil prices being above $60 per barrel in 2018 and 2019 and above $70 per barrel in 2020-21; and (iii) up to $180m subject to the achievement of certain exploration milestones. In addition, Shell will make a payment to Chrysaor of up to $25m a year between 2018 and 2021 should the average oil price during that time fall in or below the range of $47.50 to $52.50 per barrel.

Shell will also be providing a vendor loan to Chrysaor as part of the transaction and has signed hydrocarbon lifting and sales agreements for oil and gas produced from the assets being sold.

“Shell has a long and proud history in the UK North Sea, to which we remain committed,” said Andy Brown, Shell’s upstream director. “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. It also contributes to the UK’s goal of maximising economic recovery of oil and gas from the UK North Sea, which will continue to be a source of energy, and revenue, for the country for many years to come.”

On completion of the transaction, around 400 staff are expected to transfer to Chrysaor, subject to a detailed scoping exercise and staff consultation, on their existing terms and conditions of employment.

“This deal shows the clear momentum behind Shell’s global, value-driven $30bn divestment programme,” said Simon Henry, Shell’s chief financial officer. “It builds on recent upstream divestments in the Gulf of Mexico and Canada. It is also consistent with Shell’s strategy to high-grade and simplify our portfolio following the acquisition of BG, to ensure the company represents a world-class investment case. Importantly, the value here represents a profit against the book values of the assets and a breakeven oil price above that for the BG acquisition.”

The Shell/Chrysaor transaction is subject to partner and regulatory approvals and is expected to be completed in the second half of 2017.

Fraser Tennant