MergerMarket
* SAGE stake sale likel to join Apache
* North Sea E&P asset sales to be backended
* European and African retail assets likely sale options
Royal Dutch Shell’s [LON:RDSA/B] upstream Gabon assets and SAGE pipeline stake sale may be among the prime picks for the company’s USD 30bn divestment program, two sources briefed on the situation said.
The company is currently reviewing which assets it plans to market to reach this target, a Shell spokesperson said.
Shell is having conversations with different advisors regarding potential divestments, the first source familiar said. At this point, the company is not marketing any assets and is expected to have a final list of assets to be divested in next few months, the first source briefed and a source familiar cautioned.
The company has hired Lazard to advise on the divestiture programme following its USD 50bn acquisition of BG Group, which closed earlier this year, the Shell spokesperson confirmed. Morgan Stanley and Bank of America have also been appointed to conduct the sale of unspecified assets, though the spokesperson said Shell expects several banks to bid for mandates in its asset sale programme.
Shell is likely to sell less than USD 10bn this year, with a divestment focus on the downstream segment and in local gas markets etc., Shell CEO Ben van Beurden said in the company’s 4Q15 earnings webcast
Last month, Mergermarket’s sister publication InfraNews reported that the Texas-based Apache (NYSE:APA) is exploring a sale of its 30% stake in the Scottish Area Gas Evacuation system (SAGE) pipeline and terminal. Apache is the operator of SAGE. SAGE Terminal and Main Pipe ownership is split between Apache, Shell (19.7%), Marathon Oil [NYSE:MRO](20%), TAQA Bratani (22.85%), Centrica [LON:CNA] (4%) and JX Nippon (3.15%), according to Apache reports.
The SAGE system comprises the 323 kilometre, 30-inch nominal bore SAGE Pipeline and the SAGE Gas Processing Terminal, which is located 65 kilometres north of Aberdeen at St. Fergus.
The stake sale by Apache is likely to see other partners in the project, including Shell, explore a sale of their stake, the sources briefed and a third source briefed said. It does not make sense for Apache to sell on its own, the first source briefed said. An incoming party would want enough interest in the asset to assert control and realise upside, he added.
It is an integrated system and for a deal to happen the separate asset needs to be put into a corporate structure and ring fenced from the upstream assets, the second source briefed said.
SAGE is owned by a mix of oil and gas companies but there are also various third party contracts such as with tariff and capacity agreements, which makes a separation complicated, this source added.
Another likely divestiture target are Shell’s upstream Gabon assets, the first and second sources briefed said. The company has privately suggested it could be a sale option and it would garner attractive buy side interest, the second source claimed.
Shell Gabon operates the Rabi, Gamba, Totou Toucan and Koula oil fields, which produced 12m barrels in 2015.
BG Group’s offtake agreements in neighbouring Equatorial Guinea could also be sold alongside Shell Gabon, the third source briefed said. In Equatorial Guinea, BG Gas Marketing has in place a long-term agreement with Equatorial Guinea LNG Holdings Limited (EGLNG) to purchase liquefied natural gas (LNG).
Equatorial Guinea provided 20.2% of BG Group’s LNG source in 2015. BG recorded a total EBITDA in the LNG sales and marketing division of USD 1.46bn.
While the composition of Shell’s exact divestitures remain an open question, the company is unlikely to sell major upstream assets in the near term, but would backend these processes till there is an oil price recovery, the same source said.
Elsewhere in Europe the company may look to divest a small number of refineries, the second source briefed said. Shell owns or has interest in refineries across Germany, Denmark and the Netherlands, including the Shell Pernis Refinery in Rotterdam, the largest European refinery with a 404,000 barrels per day capacity.
Some downstream assets may also come up for sale in South Africa, the first and second sources briefed said. The company is unlikely to market its upstream assets in the country, the second source added. It has been putting a lot of time and money into developing the assets and it would be illogical to sell, he said.
Any sale would be unlikely to take place at the same time as the ongoing divestment of Chevron South Africa, the first source briefed said. The process for Chevron South Africa, which consists of downstream refining, retail and logistics assets, is due to kick off next month and expected to be valued at around USD 700m, this news service previously reported.
Much of the former BG’s portfolio was assessed for sale during the acquisition period, the third source briefed said. However, there are a few smaller units that could still be put up for sale such as its Egyptian, Tunisian and its Trinidadian assets.
Shell is committed to maintaining its dividend and will ramp up divestments that have averaged USD 7.5bn in the past four years to reach its target, the third source said.
The UK energy company is reported to be reviewing the sale of its North Sea E&P assets and could see the likes of private equity-backed Neptune Oil & Gas as a buyer, according to previous press reports.
However, it will very difficult to sell its North Sea assets, the second source briefed said, as these are large physical assets for which would require a large price tag for which there is little demand at present. Shell may contemplate the sale of small infrastructure type assets such as its floating production, storage, and offloading vessels and pipeline interests, he added