The Strategist

Shell to divest its Canadian assets

10/21/2016 - 14:38

Dutch-British oil company Royal Dutch Shell announced sale of non-core oil and gas assets located in western Canada to Tourmaline Oil Corp. The deal is worth $ 1.03 billion. This asset is the last that the energy company has in the region. In other words, it means that Shell is completely discontinuing activities in Canada, reports Reuters.

Mike Mozart
Mike Mozart
Shell said it intends to sell 206 thousand acres (83.37 thousand hectares) of developed and undeveloped land. Oil production in the location amounts to more than 24 thousand barrels of oil equivalent per day. The buyer is Calgary-based company Tourmaline.

The assets include 61 thousand acres (24.69 thousand hectares) in northeastern British Columbia and 145 thousand acres (58.679 thousand hectares) in a deep-water basin in the west central part of Alberta province.

Shell is implementing a program of realization of its assets in the amount of $ 30 billion worldwide, and has already reduced capital commitments in western Canada. In July, the company postponed plans to build a liquefied natural gas terminal for export to British Columbia, referring to crisis in the industry.

In October 2015, Shell suspended a project for extraction of tar sands in northern Alberta because of lack of infrastructure.

Shell’s Head of Exploration and Production Andy Brown said the company is selling its assets to Tourmaline Oil because they were admitted not compliant to Shell’s plans on long-term development.

The experts considered that sale of Shell's assets in Canada is a bad sign for the Canadian oil and gas industry. Alberta’s leftist government doesn’t clean up the situation, either. Local authorities have raised corporate taxes and introduced a fee for carbon emissions. As for other areas of Canada, they have been flooded by opponents of construction of new pipelines.

Earlier, Shell revealed its plans to sell 16 of its upstream assets worth more than US $ 500 million. Andy Brown told about this on October 19 at Oil & Money conference in London.
The company has developed a large-scale 3-year program, during which the company expects to receive $ 30 billion. These funds, in turn, will be used to reduce debt emerged after acquisition of British BG Group in February 2016. The deal amounted to $ 54 billion, so Shell had to take decisive steps to optimize costs. Given that the company refused to attract a bridge loan of $ 14.4 billion to finance the purchase, Shell had to take the issue very seriously.

To begin with, the company announced plans to cut costs for 2016 to $ 33 billion against previously planned $ 35 billion. After that, this amount has been revised downwards to $ 29 billion.
Shell also aims to restructure BG Group, planning the end of 2016 to close some offices and lay off part of regular staff.
The company did not specify what assets will be put up for sale. It is known the process will result in discontinued operations in 5 to 10 countries. Apart from Canada, there could be the United States, Trinidad and Tobago, and India, where Shell plans to sell assets worth $ 30 billion. Furthermore, Shell intends to reduce investment in the gas business, which includes production of liquefied natural gas (LNG).
Instead, Shell will focus on bringing quick profit from deep-water projects in Brazil and the Gulf of Mexico, as well as on chemical projects in the US and China.

It is expected that deep-water hydrocarbon production could increase twice by 2020, up to 900 thousand boe/day. In addition to the deep-water projects, Shell set a target to increase production of shale oil and gas production in North America and Argentina, as well enhance use of renewable energy.