Royal Dutch Shell
Plc has signed two agreements to sell all of its in-situ and undeveloped oil sands
interests in Canada and reduce its share in the Athabasca Oil Sands
Project (AOSP) from 60 percent to 10 percent. Shell
will remain as operator of AOSP’s Scotford upgrader and Quest carbon capture and storage (CCS) project.
Under the first agreement, Shell
will sell to a subsidiary of Canadian Natural
Resources Limited its entire 60 percent interest in AOSP, 100 percent interest in the Peace River Complex in-situ assets, including Carmon Creek, and a number of undeveloped oil sands
leases in Alberta, Canada. The consideration to Shell
from Canadian Natural
is approximately $8.5 billion, comprised of $ 5.4 billion in cash plus around 98 million Canadian Natural
shares currently valued at $ 3.1 billion. Canadian Natural
is one of Canada’s largest energy companies and a leader in the oil sands, with a market capitalisation of approximately $ 35 billion.
Separately and under the second agreement, Shell
and Canadian Natural
will jointly acquire and own equally Marathon Oil Canada Corporation (MOCC), which holds a 20 percent interest in AOSP, from an affiliate of Marathon Oil Corporation for $ 1.25 billion each, to be settled in cash.
The combination of these transactions will result in a net consideration of $7.25 billion to Shell.
On completion of all these transactions, it is envisaged that Canadian Natural
will be the operator of the AOSP upstream mining assets, and Shell
will continue as operator of the Scotford upgrader and Quest CCS project, located next to the 100 percent Shell-affiliate owned Scotford refinery and chemicals
plants. This arrangement is expected to allow Shell
to maximise value in its competitive Canadian downstream business and leverage proprietary technology. The transactions are expected to close mid-2017, subject to customary closing conditions and adjustments and regulatory approvals.
“This announcement is a significant step in re-shaping Shell’s portfolio in line with our long-term strategy. We are strengthening Shell’s world-class investment case by focusing on free cash flow and higher returns on capital, and prioritising businesses where we have global scale and a competitive advantage such as integrated gas and deep water. The proceeds will accelerate free cash flow and reduce gearing and make a meaningful contribution to Shell’s $30 billion divestment programme,” commented Ben van Beurden, chief executive officer, Shell.
In addition to the cash proceeds and Canadian Natural
shares, the divestment includes additional intellectual property agreements valued at up to $285 million and a long-term supply agreement for the Scotford refinery. The transactions will potentially allow for additional cost reductions and continued value chain optimisation for Shell.
In the full year 2016, the assets being divested to Canadian Natural
recorded profits before tax of negative $ 22 million with upstream production averaging around 160 thousand barrels per day. For the year ended December 31, 2016, reserves associated with the assets being divested to Canadian Natural
were 2 billion barrels and the gross assets at that date were approximately $ 12 billion. The transactions are estimated to result in a post-tax impairment of $1.3 to $1.5 billion, subject to adjustments.
retains significant operations in Canada that are not impacted by these transactions, including in upstream shales with a large Duvernay and Montney acreage position; downstream through chemicals, refining and marketing; and in Integrated Gas with the proposed LNG Canada project.