Shell sells N. Sea assets offshore for $3.8bn to US private-equity group

Linda Cook
Linda Cook

Global oil giant Shell has agreed to sell a package of N. Sea oil wells – which produce more than half its daily output from the basin – for $3.8 billion to a US-backed private-equity group, Chrysaor.

The package of assets consists of Shell’s interests in Buzzard, Beryl, Bressay, Elgin-Franklin, J-Block, the Greater Armada cluster, Everest, Lomond and Erskine, plus a 10% stake in Schiehallion.

As a result, Chrysaor will become the UK’s leading independent oil & gas company focused on the North Sea.

The decommissioning costs associated with the package are currently expected to be $3.9 billiion, of which Shell will retain a fixed liability of $1 billion and Chrysaor will assume the remaining liability.

The deal is subject to partner and regulatory approvals, with completion expected in Summer 2017. The transaction’s effective date is 1 July 2016.

 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.

 On completion, 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.

Chrysaor is a private company established in 2007 to make major equity returns by developing and commercialising oil and gas incremental resources.  The management team seeks to acquire producing fields with associated undeveloped hydrocarbon resources.

The company’s aim is to become a self-sustaining full cycle E&P company, with a portfolio of assets, combined with significant gearing to appraisal and exploration success.

The stake in each of the assets being sold by Shell is as follows:

Buzzard (21.73%), Beryl (39.4%), Bressay (18.4%), Elgin-Franklin (14.1%), J-Block (30.5%), the Greater Armada cluster excluding Gaulpe (76.4%), Everest (100%), Lomond (100%), Erskine (32%) and Schiehallion (10%). Shell is the operator of Armada, Everest and Lomond – upon completion of the sale, Chrysaor will assume operatorship of those assets.

With the exception of Schiehallion, in which Shell will retain a 45% stake, the percentages listed represent Shell’s total interest in each of the assets.

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.

 “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.”

Simon Henry, Shell’s Chief Financial Officer, said: “This deal is 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.”

However, independent oil analysts said, in effect, Shell is retreating from the N. Sea because it is not making enough money from the basin – rolling around the mid $50-$60-barrel doldrums – in favour of new and/or rival operators with lower cost structures.

Shell, in effect, is like a greedy giant python which swallowed a pig but then nearly choked to death after its mammoth $47 billion merger with BG.

Chrysaor’s current unit operating costs are currently under $15-barrel – well below the average N. Sea operator. It is paying an acquisition premium of about $8.50-barrel to Shell.

Linda Cook, a former career manager at Shell and now Chairman of Chrysaor – which is backed by Harbour Energy – said: “We aim to build a platform for significant growth in the region. We look to acquire further assets that are material to our business as we bring to bear energy, skills and additional investment to enable the company to perform to full potential.”

Harbour Energy, Ltd. (“Harbour Energy”) is an energy investment vehicle formed by the private-equity firm EIG Global Energy Partners and the Noble Group.

Alexander Burnett, MSP
Alexander Burnett, MSP

Conservative MSP Alexander Burnett, (Aberdeenshire West), Shadow Scottish Energy spokesman, said: “Shell has described this deal as a vote of confidence in the UK North Sea and I agree that the transfer of assets to a new entrant with lower overheads should be welcomed.

“This will deliver new investment and growth in the UK Continental Shelf and will help to meet the aims of the Maximising Economic Recovery (MER) strategy and prolong the life of the basin.” 

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