Chrysaor becomes biggest indy in region
Shell offloads half North Sea assets in £2.5bn deal
It is offloading its interests in Buzzard, Beryl, Bressay, Elgin-Franklin, J-Block, the Greater Armada cluster, Everest, Lomond and Erskine, together with a 10% stake in Schiehallion.
Chrysaor, led by veteran North Sea executive Phil Kirk and backed by private equity funds Harbour Energy and EIG Global Energy Partners, will become the largest independent operator in the North Sea after the deal’s completion.
In a statement Shell said that following the completion of the deal 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”.
The deal will see about 400 staff transfer to Chrysaor and will help reduce Shell’s debt following the acquisition of BG Group.
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.
“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.”
Shell and BP have struggled to generate profits in the North Sea. Shell also announced the sale of a stake in Thailand’s Bongkot gas field to Kuwait Foreign Petroleum Exploration Company for $900 million.
Oil & Gas UK Chief Executive Deirdre Michie (pictured), said: “This is a very significant deal and signals a strong vote of confidence in the future of the UK Continental Shelf and the focus on maximising economic recovery.
“With these acquisitions, Chrysaor becomes a leading independent oil and gas company in the UK and one of its largest producers on an equity basis. Maintaining a diversity of operators in the region is crucial and we welcome Shell’s continued significant presence here as well as the arrival of new companies like Chrysaor.
“We also welcome Chrysaor’s intent to explore and invest in its new portfolio; this sends positive signals about the opportunities the UK’s offshore oil and gas basin has to offer.
“This region still has the potential to yield many more millions of barrels of hydrocarbons, helping to meet the country’s primary energy needs, secure jobs and generate wealth for the economy.
“Following on from similar deals in recent months, the new activity that this transaction could generate will be good news for the sector’s supply chain across the UK, which has been severely impacted by the downturn.”
Clare Munro, head of energy & infrastructure at Brodies, said: “While this sale had been anticipated for some time it is always great when a deal actually gets over the line – especially given the challenging conditions for both sellers and purchasers in the last couple of years.
“One of the benefits of this package of assets is that it is a well balanced portfolio that provides both current and long-term production and significant stakes in several large fields.
“The package comprises both BG and Shell heritage assets and it is likely that Chrysaor will wish to maximise production and opportunities for these fields over the next few years. This will inevitably lead to further investment – which is very positive news indeed for the UKCS.”
Christian Stadler, professor of strategic management at Warwick Business School, 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.”