LONDON– Royal Dutch Shell PLC capped off a flurry of deals this month with sales in Thailand and the North Sea worth nearly $5 billion, marking important milestones in the oil giant’s move to offload $30 billion in assets.
The Anglo-Dutch company is offloading oil fields, refineries, pipelines and other operations to help pay for its roughly $50 billion acquisition of smaller rival BG Group last year. It was a transformative deal that boosted Shell’s dominant position in global natural-gas markets and snagged potentially lucrative oil fields offshore of Brazil, but also loaded the company with a debt load that had ballooned to $78 billion at the end of the third quarter.
The sales announced on Tuesday included a deal worth up to $3.8 billion for much of Shell’s British North Sea assets to Chrysaor Holdings Ltd.–an oil company backed by Harbour Energy Ltd., an investment vehicle formed by Washington-based EIG Global Energy Partners and the Singaporean commodities trader Noble Group.
Shell also announced Tuesday the sale of its interest in a Thai gas field to state-owned Kuwait Foreign Petroleum Exploration Co. for $900 million.
Shell’s shares were up 0.2% at 3:15 p.m. local time in London.
The deals are among several widely expected early this year, boosting confidence in the company’s debt-reduction plans. Shell’s commitment to slim down has proved challenging at a time of low oil prices that makes it hard to do deals. Last year, Shell fell short of its sales goal of $6 billion to $8 billion but has now reached deals worth about $11 billion overall.
The North Sea sale stands out for its size, the largest deal yet in Shell’s divestment program.
It is the latest deal in the region, where many big oil companies such as Shell are looking to sell off or restructure their interests after decades of pumping oil and gas from dwindling fields. This month, BP PLC agreed to sell a number of North Sea assets to exploration and production company EnQuest PLC.
The North Sea was once one of the world’s premier reservoirs of crude oil, but many of its fields have been drained all but dry. The world’s biggest oil companies typically focus on large projects with significant production potential, rather squeezing more out of aging fields.
Until now, sales to smaller companies in the North Sea have proved tough because of high operating costs and potential liabilities worth billions of dollars for decommissioning enormous offshore oil rigs.
Falling costs in the wake of the oil price crash since 2014 are helping change that equation.
“The North Sea is at a point of generational change,” said Chrysaor Chairman Linda Cook.
For a company such as Chrysaor, the deal brings the promise of steady revenue from production of 115,000 barrels of oil equivalent a day and the potential for new oil finds from interests in several North Sea blocks. The company is expected to take on around 400 Shell staff on completion of the deal, expected in the second half of 2017, making Chrysaor one of the largest producers of oil and gas in the U.K.
Chrysaor said it plans to sanction drilling activity to extend the life of fields it will operate and has ambitions to make more acquisitions.
The deal’s structure illustrates how low oil prices are still affecting the value of deals.
Chrysaor will pay $3 billion upfront and another $600 million between 2018-2021 subject to oil prices. If prices fall below a certain level in that period, Shell will repay up to $100 million to Chrysaor. An additional sum of up to $180 million will fall due to Shell if certain exploration milestones are hit.