Published: Wed, February 01, 2017
Economy | By Melissa Porter

Shell sells North Sea assets worth £2.46bn to Chrysaor

A Shell logo is seen at a petrol station in Ankara, Turkey, on March 6, 2012.

Royal Dutch Shell has agreed to sell stakes in 10 North Sea oil fields to smaller rival Chrysaor for as much as $3.8 billion as it dumps assets to refocus its business in an era of lower oil prices.

Shell piled up borrowings following its biggest-ever acquisition, the $54-billion purchase of BG, and needs to hit disposal targets to stave off credit rating reviews and maintain dividend payouts.

Shell, which completed a 52.6 billion United States dollars (£36.4 billion) acquisition of BG Group previous year, is embarking on an ambitious cost-cutting drive and a 30 billion United States dollars (£24.6 billion) divestment initiative.

Shell's shares were up 0.2% at 3:15 p.m. local time in London.

Shell had nearly $78 billion of net debt at the end of September. The major's net debt to equity, or gearing, stands close to 30%, the highest among its oil major peers.

Shell's chief financial officer Simon Henry added the 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".

It consists of an initial consideration of $3bn and a payment of up to $600m between 2018-2021, depending on oil price, with potential further payments of up to $180m for future discoveries. Shell is retaining a fixed decommissioning liability of approximately $1.0 billion, reducing Chrysaor's future decommissioning cost obligations. It will deliver value to Shell, Chrysaor and the United Kingdom as a whole, enabling us to continue to strengthen and optimize our United Kingdom portfolio and providing a springboard for Chrysaor to bring new investment and growth into the basin. "We are looking at the top spot in the United Kingdom".

"This acquisition reflects Chrysaor's and Harbour's belief that the UK North Sea has material future potential for oil and gas production", Kirk said in a statement. "This is not about winding down".

Shell's other North Sea assets included in the deal are 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%) and Erskine (32%). The sale also comes shortly before the group is expected to submit its formal plan to government for dismantling its rigs at Brent, a field which has produced about 10% of total North Sea production over four decades.

The transaction remains subject to partner and regulatory approvals, while completion is pegged for the second half of 2017.

Around 400 staff are expected to transfer to Chrysaor on their existing terms and conditions of employment.

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