By March 9, 2017 Read More →

Shell sells Alberta oil sands business to CNRL for $11.1 billion

Under the first agreement, Shell will sell to a subsidiary of Canadian Natural Resources Limited its entire 60 per cent interest in AOSP, its 100 per cent 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 $11.1 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 capitalization of approximately $46 billion.

Separately and under the second agreement, Shell and Canadian Natural will jointly acquire and own equally Marathon Oil Canada Corporation, which holds a 20 per cent 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.

“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,” said Shell CEO Ben van Beurden.

On completion of all transactions listed above, 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.

“We are very proud of the oil sands and in-situ operations that our people have grown in Alberta over the past several decades. These assets are an excellent fit for Canadian Natural, a highly experienced oil sands developer,” said Shell Canada President Michael Crothers.

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.

“Shell has been in Canada for more than 100 years and we plan to continue our presence as one of the country’s largest integrated energy companies. We are enhancing returns in our important Downstream business and leveraging our world-class manufacturing capabilities through the integration opportunities that come with continuing to operate the Scotford upgrader and Quest CCS project, located next to the Shell Scotford refinery and chemicals plants,” said Crothers.

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 31 Dec. 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. Shell’s share position in Canadian Natural will be managed for value realization over time.

Shell and Canadian Natural have agreed that, subject to closing of the transactions and additional further conditions, Shell may swap its 50 per cent purchased interest of MOCC for a 20 per cent interest in assets of the Scotford upgrader and Quest CCS project.

If the swap were to occur, Shell would fully exit AOSP’s mining operations and hold a 20 per cent interest in the Scotford upgrader and Quest CCS project.

Shell 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.

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