The group is selling its interests in the Beryl, Bressay, Buzzard, Elgin-Franklin, Erskine, Everest, Greater Armada cluster, J Block and Lomond fields, along with a 10 per cent stake in Schiehallion, to privately owned Chrysaor, which said the deal will see it become the UK’s “leading independent oil and gas company focused on the North Sea”.
About 400 Shell employees are expected to transfer to Chrysaor, which said it would be maintaining the workers’ current terms and conditions.
Shell will pocket an initial $3bn, followed by a payment of up to $600 million between 2018 and 2021 subject to oil prices, with potential further payments of up to $180m for future discoveries.
The assets being acquired by Chrysaor produced 115,000 barrels of oil equivalent per day last year. The redeveloped Schiehallion field is expected to add additional production when it comes back onstream this year.
Andy Brown, Shell’s upstream director, said the group remained committed to the North Sea, where it has a “long and proud history”.
He added: “This deal complements the great strides we have made over the last two years in improving the competitiveness of our UK upstream business.
“We believe this deal is a vote of confidence in the UK North Sea and offers proof that the industry’s increasing competitiveness, and improvements to the fiscal and regulatory regime, are starting to produce positive results.
“It also contributes to the UK’s goal of maximising economic recovery of oil and gas from the UK North Sea, which will continue to be a source of energy, and revenue, for the country for many years to come.”
Chrysaor, led by chief executive Phil Kirk, said it plans to grow the assets being acquired from Shell, and has identified “a number of early incremental opportunities to maximise economic recovery and extend field life”.
Kirk, who sits on the board of trade body Oil & Gas UK and co-chairs the exploration board of industry regulator the Oil & Gas Authority, said: “Chrysaor is acquiring a high-quality package of assets which combine low-cost production, a substantial reserves and resources base with strong cash flows and a highly competent and skilled workforce.
“These assets, combined with our own experience and the outstanding team who will transfer from Shell, provide an excellent platform for change and growth in the North Sea. We look forward to working with Shell, with our future colleagues and other stakeholders to complete this transaction.”
Chrysaor also said today that it will receive an investment of up to $1bn from Harbour Energy, an investment vehicle backed by private equity firm EIG Global Energy Partners, together with funds managed by EIG, to support the acquisition and provide future growth capital. A reserves-based loan of up to $1.5bn will also be provided by a syndicate of banks.
As part of the deal, EIG managing director Linda Cook, who is also chief executive of Harbour Energy, is joining Chrysaor as its chairman.
Cook, a former Shell board member who spent 29 years at the oil major, said: “The North Sea has undergone a revolution in recent times with operating costs falling to competitive economic levels, and we believe this signals a moment for a generational change in the basin.
“Chrysaor, backed by Harbour, will form a platform for significant growth in the region. We look to acquire further assets that are material to our business as we bring to bear energy, skills and additional investment to enable the company to perform to full potential.”
Shell, which completed its $52.6bn acquisition of BG Group last year, is providing junior debt financing for the deal and is retaining a fixed decommissioning liability of about $1bn, which Chrysaor said would reduce its own future decommissioning cost obligations.
Clare Munro, head of energy and infrastructure at law firm Brodies, said: “While this sale had been anticipated for some time it is always great when a deal actually gets over the line – especially given the challenging conditions for both sellers and purchasers in the last couple of years.
“One of the benefits of this package of assets is that it is a well-balanced portfolio that provides both current and long-term production and significant stakes in several large fields. The package comprises both BG and Shell heritage assets and it is likely that Chrysaor will wish to maximise production and opportunities for these fields over the next few years. This will inevitably lead to further investment – which is very positive news indeed for the UK continental shelf.”