by Sophie Nguebana
Royal Dutch Shell, whose revenue is estimated at $419.4 billion USD, is Europe’s largest oil company and one of the biggest unconventional E&P companies. Indeed, Shell has invested at least $24 billion in unconventional oil and gas in North America. Yet, on October 21, the company sold some of its Canadian non-core oil and gas properties for $1 billion to Calgary-based firm, Tourmaline.
The deal involves 206,000 acres (83,365 hectares) of developed and undeveloped land, amounting to the production of about 24,850 barrels of oil equivalent per day in the Gundy area of Northeast British Columbia and the Deep Basin area of west central Alberta. The assets include 61,000 acres (24,685 hectares) in the Gundy area and 145,000 acres (58,679 hectares) in the Deep Basin area. Tourmaline Oil of Canada will pay Shell $758 million in cash plus shares valued at $279 million.
Figure 1. Deep Basin area, Alberta (Shell.ca)
This deal represents the first big sell off of upstream exploration and production assets under Shell’s drive to contain rising debts after its merger with BG Group last year, which has significantly increased the combined group’s debt load.
“We are strengthening our shales business and creating shareholder value by selling assets that do not fit our near-term development plans,” Shell Upstream Director Andy Brown said. The company wants to reshape with a plan to grow free cash and returns.
However, Shell still has not completely withdrawn from Canada, as it owns nearly 650,000 net acres together in both the Montney and Duvernay shale fields- one of the main oil sands producers in northern Alberta.
The transaction of Canadian assets has pushed Shell’s debt-to-equity ratio i.e. the relationship between long-term funds provided by creditors and funds provided by owners, close to the group’s self-imposed limit of 30%. However, the disposal program put in place may drag on beyond 2018 if oil prices remain depressed. As a consequence, it has raised scepticism amongst some investors about Shell’s ability to hit the $30 billion disposal targets, although according to Andy Brown, Shell has 16 assets sales to come-each worth at least $500m.