Current RDS.A Stock Info

Deal will make Chrysaor one of the largest UK oil and gas producers 

Royal Dutch Shell (ticker: RDSA) has agreed to sell a package of UK North Sea assets to privately held UK producer Chrysaor for a total of up to $3.8 billion, including an initial consideration of $3.0 billion and a payment of up to $600 million between 2018-2021 subject to commodity price, with potential further payments of up to $180 million for future discoveries.

The package of assets consists of Shell’s interests in Buzzard, Beryl, Bressay, Elgin-Franklin, J-Block, the Greater Armada cluster, Everest, Lomond and Erskine, plus a 10% stake in Schiehallion.

On completion of the acquisition, Chrysaor will become one of the largest producers of oil and gas in the UK, the company said. The assets being acquired produced 115,000 BOEPD in 2016. The redeveloped Schiehallion field is expected to add additional production when it is back onstream in 2017, Chrysaor said in a press release.

Key field areas / hubs Chrysaor Equity Interest (%)
Beryl Area  39.4
Bressay  18.4
Buzzard  21.73
Elgin-Franklin  14.1
Erskine  32
Everest  100
Greater Armada Area  76.4
J Block  30.5
Lomond  100
Schiehallion  10

With the exception of Schiehallion, in which Shell will retain a 45% stake, the percentages listed represent Shell’s total interest in each of the assets.


According to Chrysaor, the deal is being funded by an investment of up to $1 billion from Harbour Energy, an investment vehicle formed by EIG and the Noble Group and managed by EIG, as well as from other funds managed by EIG, junior debt financing from Shell, and a Reserves Based Loan of up to $1.5 billion will be provided by a syndicate of leading international banks with considerable North Sea experience. The balance will be provided by a completion adjustment reflecting cash flows generated between the effective date of 1 July 2016 and closing.

Shell will make a payment to Chrysaor of up to $25 million a year between 2018-21 should the average oil price during that time fall in or below the range of $47.50 – $52.50 per barrel. Shell is providing a vendor loan to Chrysaor as part of the transaction and has signed hydrocarbon lifting and sales agreements for oil and gas produced from the assets being sold.

The companies said the deal is expected to close in the second half of 2017.

Shell Selling North Sea Assets to Chrysaor for $3.8 Billion

Shell Selling North Sea Assets to Chrysaor for $3.8 Billion. Map: Chrysaor

Unit operating costs under $15 per barrel

Current unit operating costs across the portfolio are under $15 per barrel. The transaction is expected to comprise around 350 million barrels of oil equivalent proven and probable (2P) reserves as at the transaction effective date of 1 July 2016.

Based on the initial consideration received, Shell expects to record an accounting gain on sale against the values of both the Shell and former BG assets included in the package.

The decommissioning costs associated with the package are currently expected to be $3.9 billion, of which Shell will retain a fixed liability of $1 billion and Chrysaor will assume the remaining liability.

Shell reported its total UK North Sea production during 2016 was around 211 MBOEPD.

Vote of confidence for UK North Sea oil and gas

Andy Brown, Shell’s upstream director, said, “We believe this deal is a vote of confidence in the UK North Sea and offers proof that the industry’s increasing competitiveness, and improvements to the fiscal and regulatory regime, are starting to produce positive results. It will deliver value to Shell, Chrysaor and the UK as a whole, enabling us to continue to strengthen and optimise our UK portfolio and providing a springboard for Chrysaor to bring new investment and growth into the basin.

Shell CFO Simon Henry said, “This deal shows the clear momentum behind Shell’s global, value-driven $30 billion divestment program. It builds on recent upstream divestments in the Gulf of Mexico and Canada. It is also consistent with Shell’s strategy to high-grade and simplify our portfolio following the acquisition of BG, to ensure the company represents a world-class investment case. Importantly, the value here represents a profit against the book values of the assets, and a breakeven oil price above that for the BG acquisition.”

“Chrysaor strongly believes that the North Sea presents an attractive opportunity to build a large scale and independent full-cycle exploration and production business,” the company said in a statement on its website. “The North Sea basin is roughly half way through its productive life. This is typically a point where a new generation of operators steps in to maximize a basin’s total potential, bringing fresh capital, new strategic priorities and new techniques. The package Chrysaor has agreed to buy from Shell represents an ideal set of assets upon which to build such a company and to help realize the North Sea’s potential.”

Chrysaor said it’s goal is to extend the production life of the assets using a combination of:

  • enhanced recovery techniques,
  • in-fill exploration on and around the acquired acreage,
  • fallow field development,
  • and bolt-on acquisitions.

Chrysaor said it plans to withdraw the cessation of production notification at the Armada hub, and instead it will invest to extend the life of the hub.

Shell Selling North Sea Assets to Chrysaor for $3.8 Billion

Linda Cook, Chairman of Chrysaor

Chrysaor’s chairman is Linda Cook, who retired from Royal Dutch Shell in 2010, at which time she was on Shell’s board of directors and a member of the executive committee. Additionally Cook served Shell as CEO of Shell Gas and Power and Shell Canada Ltd., as well as EVP of strategy and finance for Shell global exploration and production. Cook also served as a non-executive director for Marathon Oil Company.

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