Shell cuts debt with US$7.25 billion sale of Canada oil sands

Royal Dutch Shell is selling almost all its production assets in Canada's oil sands in a US$7.25 billion (S$10.24 billion) deal.
Royal Dutch Shell is selling almost all its production assets in Canada's oil sands in a US$7.25 billion (S$10.24 billion) deal. PHOTO: REUTERS

TORONTO (BLOOMBERG) - Royal Dutch Shell will sell almost all its production assets in Canada's oil sands in a US$7.25 billion (S$10.24 billion) deal that cuts debt and reduces involvement in one of the most environmentally damaging forms of fossil-fuel extraction.

The company will sell all of its oil-sands interests apart from a 10 per cent stake in the Athabasca Oil Sands mining project, The Hague-based Shell said on Thursday (March 9). It will also continue as operator of the Scotford upgrader and Quest carbon capture and storage project.

The Anglo-Dutch producer is part-way through a US$30 billion divestment program to reduce debt, which soared following its US$54 billion acquisition of BG Group last year. The company sold US$5 billion of assets in 2016, and this week clinched US$2.2 billion from the break-up of a refining partnership with Saudi Arabian Oil.

 

Chief executive officer Ben Van Beurden said last month that Shell was unlikely to take on new high-cost oil-sands projects after the crude price slump.

"This announcement is a significant step in re-shaping Shell's portfolio," Mr Van Beurden said in a statement. "The proceeds will accelerate free cash flow and reduce gearing and make a meaningful contribution to Shell's US$30 billion divestment program."

The company will sell to a unit of Canadian Natural Resources its entire 60 per cent 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 US$8.5 billion, comprising cash and shares.

Under a second agreement, Shell and Canadian Natural will jointly acquire and own Marathon Oil Canada, which holds a 20 per cent interest in the Athabasca project, from an affiliate of Marathon Oil for US$1.25 billion each, to be settled in cash.

The transactions are expected to close in mid-2017, subject to regulatory approvals.

Oil sands, the reserves of heavy crude found primarily in northern Alberta, are expensive to extract and have fallen out of favour following the market collapse. They have also been a target of environmental campaigners due to the greenhouse-gas emissions generated from the production and processing required to produce synthetic crude.