SHELL SELLS CANADA: $1 BLN
According to FT, Royal Dutch Shell has cashed in on buoyant investor demand for North American shale oil and gas by selling some of its Canadian reserves for $1bn.
The proposed sale to Tourmaline Oil of Canada represents the first big disposal of upstream exploration and production assets under Shell's drive to contain rising debts after its takeover this year of BG Group by offloading $30bn of assets.
The Anglo-Dutch group has faced questions over its ability to meet the disposals target by the end of 2018 at a time when valuations for most upstream assets are under pressure from weak oil prices and buyers are relatively scarce.
However, North American shale oil and gas assets — seen as relatively low-cost resources — have been an exception to the otherwise gloomy dealmaking landscape and transaction activity has picked up in recent weeks as oil prices have rebounded above $50 a barrel.
The Shell deal involves 206,000 acres of developed and undeveloped land in the Gundy area of north-east British Columbia and the Deep Basin area of west central Alberta. Tourmaline, an independent oil explorer, will pay Shell $758m in cash plus shares valued at $279m.
Biraj Borkhataria, analyst at RBC Capital Markets, said the transaction was positive given concerns about Shell's rising debts and the scepticism among some investors about its ability to hit the $30bn disposals target.
Shell's net debt has more than doubled to $75bn since its £35bn takeover of BG Group was completed in February.
This has pushed Shell's debt-to-equity ratio close to the group's self-imposed limit of 30 per cent, and raised questions about the sustainability of its prized dividend — the biggest in the oil industry — which has not been cut since the second world war.
Analysts said Shell's willingness to accept shares from Tourmaline as part-payment reflected the difficulty of the mergers and acquisitions market and the need for the Anglo-Dutch group to get deals done.
Shell had completed only $1.5bn of disposals at the end of June, with a further $1.6bn agreed.
This has left it facing a challenge to strike deals at a rate of about $1bn a month to meet the $30bn goal by the end of 2018.
Andy Brown, head of Shell's upstream business, said this week that sales processes are under way for 16 assets each worth at least $500m.
These are known to include a package of assets in the UK North Sea, valued at about $2bn, which has attracted interest from Ineos, the privately held UK petrochemicals group, and Siccar Point Energy, owned by private equity firms Blackstone and Blue Water Energy, according to people with knowledge of the situation.
Mr Brown said the deal with Tourmaline did not signal a full-scale retreat by Shell from Canada, where the group has further shale assets in the Montney and Duvernay fields. Those sold to Tourmaline were non-core parts of the portfolio which did not fit Shell's near-term development plans, he added.
Shell will be handing over 25,000 barrels of oil equivalent per day of production to Tourmaline, 85 per cent of it in natural gas.
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