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London - All of the company’s oil-sands interests apart from a 10% stake in the Athabasca mining project will be sold to Canadian Natural Resources, Shell said on Thursday. The Hague-based company will continue as operator of the Scotford upgrader, which converts heavy oil to lighter liquids for easier transport, and the Quest carbon capture and storage project.
The Anglo-Dutch producer is almost two-thirds of the way through a $30bn divestment program to reduce debt, which soared following its biggest-ever acquisition of BG last year. The company this week ended an almost two-decade old US refining partnership with Saudi Arabian Oil and earlier this year sold a collection of oil fields in the UK North Sea.
“This announcement is a significant step in re-shaping Shell’s portfolio,” CEO Ben Van Beurden said in a statement. “The proceeds will accelerate free cash flow and reduce gearing and make a meaningful contribution to Shell’s $30bn divestment programme.”
The deal also marks another step toward Van Beurden’s goal of preparing Shell for a world of lower oil prices and tighter restrictions on carbon emissions.
Oil sands - reserves of heavy crude found primarily in northern Alberta - lured investors in the past decade as the surge in crude prices above $100 made the difficult extraction process economic. They’ve since fallen out of favor amid a two-year price slump.
Shell on Thursday also amended its pay policy to better reflect incentives to control emissions. Cutting greenhouse gases, including both carbon dioxide and methane, from its refineries, chemical plants and burning of natural gas at its fields, will make up 10% of executives’ bonuses.
This 10% weighting was split between energy intensity, controlling oil spills and water use last year, according to the company’s annual report.
Abandoned projects
Shell took a $2bn charge in 2015 as it shelved the Carmon Creek oil-sands development and van Beurden said last month that the company wouldn’t take on any new oil-sands projects. Exxon Mobil slashed reserves in February after removing the $16bn Kearl project from its books. A day earlier, ConocoPhillips said that erasing oil-sands barrels had reduced its reserves to a 15-year low.
Oil-sands deposits are among the costliest petroleum projects because the raw bitumen extracted must be processed and converted to a synthetic crude before being transported to refineries, mainly in the US This process also emits more carbon dioxide than production of conventional crude.
“It takes away some very high-cost production and will help reduce Shell’s operating costs, which were already among the highest in its group,” said Ahmed Ben Salem, a Paris-based analyst at Oddo Securities.
“Oil sands was losing money and the sale will help the company focus on projects that have lower break-even prices.”
Production hit
The sale will result in Shell taking a $1.3bn to $1.5bn post-tax impairment charge after completion, according to the statement. It will also remove about 85% of the proven 2 billion barrels of oil-sands reserves from its books. The company had 13.25 billion barrels of total oil and gas reserves at the end of 2016, according to its annual report.
Shell will sell to a unit of Canadian Natural its entire 60% interest in the Athabasca project, all of the Peace River Complex in-situ assets - which extract crude without mining - and a number of undeveloped leases in Alberta. Those disposals will fetch about $8.5bn, comprising cash and shares.
Under a second agreement, Shell and Canadian Natural will jointly acquire and own Marathon Oil Canada, which holds a 20% interest in the Athabasca project, from an affiliate of Marathon Oil for $1.25bn each, to be settled in cash.
Shell’s share of output from the Athabasca project before the divestment was about 150 000 barrels a day, with another 14 800 barrels a day from Peace River. Total oil and gas production in 2016 averaged 3.7 million barrels of oil equivalent a day, according to the company’s annual report.
The transactions are expected to close in mid-2017, subject to regulatory approvals.
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