OilVoice - Shell to Spin-Off Its North Sea Assets

Shell to Spin-Off Its North Sea Assets

Tuesday, February 16, 2010

Anglo-Dutch oil major Royal Dutch Shell is set to place its North Sea operations 'on the block' as part of a plan to offload $10 billion worth of assets. The move comes on the back of the firm reporting disappointing fourth-quarter results for 2009 and is likely part of Shell CEO Peter Voser's broader plans to cut costs and refocus the business.

Shell is offering its portfolio of North Sea oil operations to its international oil rivals, in a possible indication of the firm's desire to move out of its traditional, less profitable businesses in order to exploit higher growth opportunities. This 'shrink to grow' strategy is being practised by a number of oil firms as the global economy climbs out of the downturn.

In addition to selling its North Sea assets, Shell is also looking at a $5 billion programme to sell off its troublesome onshore fields in Nigeria. Also as part of its plan, Shell has hired Credit Suisse to sell its $1 billion European liquefied petroleum gas (LPG) arm, has taken bids of nearly $500 million on its African network of petrol stations, and is considering a $1.2 billion auction of three of its European refineries.

Shell's 75% drop in profits in the fourth-quarter of last year spurred the major into action. The firm swiftly announced a restructuring plan that would cut 1,000 jobs and reduce overall costs by $1 billion.

Shell's upstream oil operations in the North Sea and Nigeria have traditionally been at the very centre of the company's strategy.

However, increasingly smaller returns on investments in the North Sea combined with the increased security risks and operating costs in the Niger Delta have prompted the company to look elsewhere for growth opportunities.

In selling off some of its major oil assets, Shell may be looking to free up financial resources to re-route its business towards the gas sector, where it has indicated it sees strong growth potential in line with the global trend towards shifting to cleaner sources of energy.

Shell has recently made large investments in its Pearl gas-to-liquids(GTL) plant and its Qatargas liquefied natural gas (LNG) plant in Qatar, and has announced it is studying the results of a gas shale exploration well in Sweden. While Shell is still focused on cost cutting measures and the future direction of its business is unclear, the reported oil asset sell-off may well be the first of many both for shell and its rivals alike.