Global Insight Perspective | |
Significance | Shell has this week shed a significant portfolio of European assets, selling three French refineries and a 28% interest in the US$5-billion Skarv and Idun development project in the Norwegian Sea. |
Implications | The sales form part of Shell's plans to divest US$9 billion in assets during 2007 to free up cash for the company's core activities of exploring for and developing more oil and gas. |
Outlook | More European asset sales can be expected to follow, including interests in a group of the company's minor fields in the U.K. North Sea. |
Divestment Programme Gains Momentum
Anglo-Dutch supermajor Shell has made two further announcements on the sale of assets from its European operations. Yesterday, the company's French division said it had reached agreement to sell its Berre-l'Etang refinery complex to Dutch petrochemical company Basell for US$700 million. The Berre-l'Etang refinery has an output of around 60,000 barrels per day (b/d). Shell said the sale will be subject to staff consultation and regulatory approval and expects the transaction to close in early 2008. Earlier in the day, the company had indicated it was also finalising an agreement to sell the 154,000-b/d Petit Couronne refinery and the 85,000-b/d Reichstett-Vendenheim refinery in France to Swiss group Petroplus (see Related Articles). The three refineries were the focus of a strategic review of Shell's assets launched in January this year, which also covered the possible sale of the Yabucoa petrochemical feedstock plant in Puerto Rico.
Furthermore, the company announced today that it had agreed to divest its 28% interest in Norway's Skarv and Idun oil and gas development to German utility E.ON for US$893 million. The adjacent Skarv and Idun fields in the Norwegian Sea are operated by BP and Statoil, respectively. Skarv is estimated to hold recoverable reserves of 16.4 MMcm of oil, 34.5 MMcm of gas, 4.5 million tonnes of natural gas liquids and 4 MMcm of condensate, while Idun is estimated to hold 11.9 Bcm of gas, 1.2 million tonnes of natural gas liquids and 0.3 MMcm of condensate. A US$5-billion plan to develop and operate the fields was submitted to the Norwegian parliament in June, with production expected to start up in 2011. Shell said the sell-off was part of its ongoing portfolio evaluation and emphasised that it remained full committed to the Norwegian oil and gas industry, which it considered "a key area of growth" within its European business.
For E.ON, the acquisition of a stake in the Skarv-Idun development represents an expansion of its upstream interests and will assist the company in meeting its gas-sales commitments. The company holds a 15% stake in the planned Skanled pipeline is scheduled to come onstream in late 2012 and will deliver gas from the east of Norway to Sweden and Denmark. A number of equity holders in Skanled have yet to source gas production to feed into the pipeline; E.ON's interest in the Skarv-Idun development will allow it to deliver gas to Sweden or Denmark—where it has end-user customers—or on to continental Europe.
Outlook and Implications
Shell's suite of asset sales announced this week form part of a broader, ongoing review of its assets, which is seeing the company rid itself of non-core assets, consolidate its downstream business, and offload smaller upstream interests in a bid to focus its resources on the core challenge of finding and producing more oil and gas. Basell, the expected purchaser of the Berre-l'Etang refinery, was itself offloaded by Shell for 2.2 billion, while a 68% interest in power company InterGen was divested for over US$1 billion in 2005. At the end of that year, Shell announced it had met its three-year divestment target of US$12-15 billion one year ahead of schedule.
More recently, the company's attention has turned to its refining assets. This year, it sold its California refinery to Tesoro Petroleum for US$1.63 billion, and the strategic review of its French operations now looks likely to lead to the sale of a further three refineries. These transactions put Shell well on the way to meeting its expected divestment of a further US$9 billion in assets in 2007.
The company's slimmed down and refocused approach appears to be paying dividends. Despite ongoing operational challenges focused on its production in the troubled Niger Delta region, Shell managed to post a 20% year-on-year gain in profits for the second quarter of 2007, putting the company on track for a solid performance this financial year. The divestment programme is unlikely to be complete quite yet, however, and with accessing upstream resources only likely to prove increasingly challenging, the company can be expected to keep an eye on further opportunities to trim back less profitable operations in order to free up resources to meet these challenges ahead. In the near term, the sale of interests in a group of Shell's minor oil and gas fields in the U.K. North Sea is likely to be the next divestment announcement to watch out for.
Related Articles
France: 2 August 2007:Petroplus to Purchase Two French Refineries from Shell
World: 26 July 2007: Shell Posts 20% Q2 Profit Gain on Strong Downstream Performance
United Kingdom: 15 June 2007: Fairfield in Talks with Shell, ExxonMobil on North Sea Asset Deal
France: 12 January 2007: Shell Review Could See French Refineries, Puerto Rican Petrochemicals Plant Sold
Norway: 2 July 2007:BP Files US$5-bil. Development Plan for Skarv and Idun Fields
United States: 14 May 2007: Tesoro Completes Acquisition of Shell Assets in U.S. State of California