Is Shell Discussing North Sea Asset Sales With Likely Buyers?

Integrated energy major, Royal Dutch Shell (LON:RDSa) plc RDS.A is now in discussion with potential buyers for divesting some North Sea properties it got after merging with BG Group (LON:BG) plc − a leading upstream energy player in the UK – going by Bloomberg.

In detail, Shell is now assessing the interest of buyers – Ineos Group and Neptune Oil & Gas – before entering into final agreements. Neptune Oil & Gas is an investment firm while Ineos Group is a leading chemical manufacturing company.

The common question now is what is prompting Shell to sell some of its North Sea properties. After the $54 billion-worth BG merger – that has placed Shell as the third largest private oil player in the world after Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) – Shell’s debt increased significantly especially in a weak commodity market. Eventually, the deal was questioned by many analysts and Shell suffered a credit rating downgrade from Fitch Ratings Ltd. – a leading credit rating agency. In other words, there has been a crunch in liquidity following a huge outflow of cash from Shell’s pocket after the merger.

Hence, Shell is planning to utilize the divestment proceeds to improve its financials primarily by paying off debts. In fact, Europe’s biggest oil firm intends to divest assets worth as much as $30 billion over 2016–2018 in order to offset its financial weakness following the acquisition of BG Group.
Another important reason for specifically considering the North Sea asset sales among many properties is that operating cost is high there. This is not feasible when oil and gas prices have been weak for a length of time, although crude has regained momentum.

Headquartered in The Hague, the Netherlands, Shell is one of the largest integrated oil and gas companies in the world. It explores for and extracts crude oil, natural gas and natural gas liquids. It has interests in chemicals as well as in power generation and renewable energy.

Shell currently carries a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.

A better-placed energy player is PetroChina Co. Ltd. (NYSE:PTR) , sporting a Zacks Rank #1 (Strong Buy).


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