Shell said to consider sale of US$1 billion Malaysia LNG stake

KUALA LUMPUR (BLOOMBERG) - Royal Dutch Shell is considering a sale of its stake in a Malaysian liquefied natural gas export plant, which could fetch more than US$1 billion (S$1.38 billion), people familiar with the matter said.

Shell is gauging interest in its 15 per cent stake in MLNG Tiga, which owns an LNG terminal in Sarawak on the island of Borneo, according to the people. The sale may draw interest from private-equity firms, the people said, asking not to be identified as the process is private. Malaysia's state-owned Petroliam Nasional Bhd, which holds 60 per cent of MLNG Tiga, has pre-emptive rights on the stake, one of the people said.

The disposal is part of the Anglo-Dutch energy giant's plan to raise US$30 billion from asset sales in the three years through 2018 to help cut borrowings after its acquisition of BG Group prompted Fitch Ratings to lower its credit rating. The company's total debt ballooned to US$90.3 billion at the end of June, from US$52.9 billion a year earlier, data compiled by Bloomberg show.

"The pressure is on Shell to slim down its global footprint following the BG acquisition," Saul Kavonic, a Perth-based analyst at energy consultancy Wood Mackenzie, said in an e-mailed response to questions. "Majors are also looking to remove mature, high ongoing-cost assets and rebalance towards growth and long-life 'cash cow' assets." Steady Cash Flow MLNG Tiga, set up in 1995, is the third plant to be built in the Petronas LNG complex in Bintulu, Sarawak, according to its website. The plant has a production capacity of 6.8 million metric tons a year.

Europe's largest oil company by market value sold more than US$20 billion of assets in 2014 and 2015 combined, Shell Chief Executive Officer Ben Van Beurden told analysts in February. It will likely see less than US$10 billion of disposals this year, he said.

"The MLNG Tiga plant should be relatively insulated from the supply glut in the market, as most of its supply is contracted on a long-term basis to buyers in Northeast Asia," said Chong Zhi Xin, principal LNG analyst for Wood Mackenzie in Singapore. "This asset will probably be attractive to companies that are looking for a steady cash flow stream. There is also the benefit of developing a closer relationship with Petronas."

Shell regularly receives expressions of interest for its assets and continues to evaluate all opportunities and proposals, a spokesman for Shell said by e-mail, adding that all such discussions are confidential. Should any offer be received by Petronas, the company will evaluate it on its own merits, the Malaysian company said in an e-mailed statement.