Shell divests Canadian oil sands asset for $7.5 B

In Royal Dutch Shell’s target to reshaping the company’s structure and operations, Shell announced on Thursday a two-part agreement in selling its oil sands assets in Canada, while reducing its share in the Athabasca Oil Sands Project (AOSP) from 60% down to 10%. The deal was made by Shell Canada Energy, Shell Canada Limited, and Shell Canada Resources.

Totaling the two agreements announced to be undertaken; Shell will receive $7.5 billion of net considerations out of all its divestments in Canada region.

On the first agreement, where Shell will receive around $8.5 billion, $5.4 billion in cash and 98 million Canadian Natural shares valued at $3.1 billion, the company will unload its assets to a subsidiary of Canadian Natural Resources Limited (Canadian Natural). All of Shell’s 60% interest in AOSP will be divested, including its 100% interest in Peace River Complex, Carmon Creek, and other underdeveloped oil sands leases in Alberta, Canada, leaving only a 10% in shares.

For the second agreement, Shell and Canadian Natural will buy and equally own Marathon Oil Canada Corporation (MOCC) for $1.25 billion in cash. MOCC holds 20% interest in AOSP.

According to Shell CEO Ben van Beurden, the company’s actions are taken out of its goal to reshaping Shell’s portfolio as a long-term strategy. “We are strengthening Shell’s world-class investment case by focusing on free cash flow and higher returns on capital, and prioritizing businesses where we have global scale and a competitive advantage such as Integrated Gas and deep water,” said van Beurden.

With the payment received after the divestments, Shell will focus the funds in improving free cash flow and reducing gearing while contributing as well to Shell’s $30 billion divestment program.

Aside from the cash proceeds, Shell will also receive intellectual property rights, which are valued at around $285 million, along with a long-term supply from the Scotland refinery.

“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,” said Shell Canada President Michael Crothers.

Meanwhile, Shell is still to retain its Canadian operations that are not going to be affected by the transactions, which mainly include Upstream shales with Duvernay and Montnet, Downstream through chemicals, and Integrated Gas.

The Marathon Oil deal is expected to be closed around mid-2017, while the Permian Basin deal will closed during the second quarter of the year.

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