Shell Sheds Egyptian Assets for up to $926mn: Update
Anglo-Dutch Shell has reached a deal to sell its interests in onshore fields in Egypt's Western Desert for up to $926mn to UK producer Cairn Energy and its Egyptian partner Cheiron Petroleum, the companies announced on March 9. Cairn, meanwhile, has struck a deal to sell its interests in the Catcher and Kraken fields in the UK North Sea for $460mn plus contingent payments to Aberdeen-based Waldorf Production.
Shell's Western Desert business includes interests in 13 onshore concessions and a 50% stake in Badr El Din Petroleum Co, a joint venture with Egyptian General Petroleum Corp, which holds several more production assets. Cairn and Cheiron will pay a base price of $646mn for the assets, plus up to $280mn in contingency payments between 2021 and 2024, depending on oil prices and exploration results. Shell netted 83,000 barrels of oil equivalent/day from the assets last year, two thirds of which was gas.
"Today's announcement is consistent with Shell's efforts to shift our upstream portfolio to one that is more focused, resilient and competitive," the major's upstream director Wael Sawan commented. "It will enable Shell to concentrate on its offshore exploration and integrated value chain in Egypt, including seven new blocks in the Nile Delta, West Mediterranean and Red Sea."
The 2015 discovery by Italy's Eni of the Zohr gas field in the Egyptian Mediterranean and its subsequent launch two years later has prompted a flurry of investor interest in the country's offshore zone. Several other large-sized fields have been found since then, raising prospects for a ramp-up in Egyptian gas exports.
In the West Mediterranean, Shell recently acquired the North Marina and North Cleopatra concessions in the Herodotus basin in partnership with Total and Egypt's Tharwa Petroleum, along with the North Ras Kanais concession with Total, Tharwa and Kuwait's Kufpec. In the Red Sea, it obtained two concessions together with Tharwa and the UAE's Mubadala Petroleum, while in the West Nile Delta it picked up two more in partnership with Malaysia's Petronas.
Cairn, which does not currently operate in Egypt, said the deal would net it 113mn boe of proven and probable reserves and between 33,000 and 38,000 boe/d of expected production this year with an operating cost of only $6/boe, "with significant potential to increase production levels in future years." The deal will be backdated to January 1, 2020.
"The proposed acquisition of Shell's Western Desert assets in Egypt is an important step in our strategic ambition to expand and diversify our producing asset base, bringing material reserve and production additions and offering significant exploration potential," Cairn CEO Simon Thomson said. "We are delighted to be entering a country that has significant oil and gas growth opportunities where the government has created an attractive environment for inward investment."
Its partner Cheiron has "extensive experience and complementary strengths," Cairn said. Cheiron has onshore and offshore interests in Egypt along with rights to acreage in Romania and Mexico, netting the company 50,000 boe/d of oil and gas output in 2019.
Cairn and Cheiron plan to finance the deal with a new joint acquisition reserve-based lending facility of up to $350mn, a joint junior debt facility of $100mmn and existing cash. The funds raised from the sale of Cairn's Catcher and Kraken stakes, expected to be closed in the second half of the year, should help bolster the company's cash position.
North Sea sales
Cairn will sell a 20% interest in Catcher and a 29.5% interest in Kraken, it said in a separate statement. Besides the $460mn price tag, it will also receive uncapped contingency payments from Waldorf depending on oil prices until the end of 2025. These payments will amount to $75mn if Brent averages $60/b during the period and $125mn if it comes to $65/b.
The Premier-operated Catcher and EnQuest-led Kraken projects are set to enter decline in 2021, less than four years after they were brought on stream. Cairn netted 21,000 boe/d of supply from the fields in 2020 but expects this to fall to 16,000-19,000 b/d in 2021.
"The divestment of our UK producing assets as they move into decline phase, will further strengthen our ability to pursue Cairn's strategic goals and position the company robustly for the decade ahead," Thomson said.
Waldorf CEO Erik Brodahl described the acquisition as "transformational." The company has also agreed to buy a 20% interest in UK blocks 22/1b and 22/1a from Ithaca Oil and Gas, it said on March 9. The former licence holds the Fotla prospect, where an exploration well is due to be drilled in the second quarter of 2021.
"Waldorf sees the North Sea as uniquely suited for disciplined small-cap E&P companies such as ourselves with well-managed, long-life assets available at attractive valuations," Brodahl continued. "We continue to look for further growth opportunities in the near-term."