Royal Dutch Shell sold its assets in the Appalachia region, the largest shale gas field in the US, at prices nearly nine times lower than when it was purchased.
Energy giant Royal Dutch Shell is negotiating to sell its Appalachia shale gas field to the National Fuel Gas Company (NFG) listed in the US for $ 541 million, according to Kallanish Energy.
|Royal Dutch Shell Group divested from Appalachia gas field|
The Anglo-Dutch group said on May 5 that the transaction is part of a strategy to divest from non-core investments. According to its shale portfolio, Shell said it focused on developing into more profitable areas. Shale gas production requires high investment and production costs, while oil prices are currently sharply declining and are unlikely to recover in the short term.
Wael Sawan, Chief Operating Officer of Shell’s upstream division, said it sold the gas complex to continue seeking exciting opportunities at home and abroad, focusing on cost reduction and increased efficiency.
Shell affirmed that the sale of the Appalachian shale gas field would not affect the group’s commitment to the region and the Pennsylvania Petrochemical Complex.
Shell wants NFG to pay cash in full for the acquisition, but there is another option: pay cash and pay in common stock, or $ 150 million. The deal is expected to end at the end of July 2020.
According to OilPrice, Shell’s deal with NFG will be similar to those at this difficult economic time but most notably, it paid $ 4.7 billion in 2010 to buy assets in Appalachia, the time when At that point, shale oil and gas began to explode.
With this acquisition, Shell has priced the asset nearly 9 times lower than it was at the time of purchase.
Shell’s report shows that the gas fields in the US are no longer profitable as much as before. The low prices of natural gas over the past few years have made Shell consider the Appalachian basin unimportant to invest.
Low natural gas prices also made the company compensate about $ 1.93 billion for U.S. shale gas assets in 2019. Last December, Shell also sold Ownership of about 350 shale gas production wells. and related facilities at Marcellus and Utica mines in Pennsylvania and West Virginia.
A retreat from shale gas assets did not just happen at Shell. The American conglomerate Chevron also had to spend $ 10.4 billion in debt in 2019. More than half of the shale-related debt is in Appalachia.
By the end of December 2019, Chevron said it would reduce funding for gas-related investments including the Appalachia shale quarry, and they are evaluating strategic options for these assets, including divestments.
Pittsburgh Business Times said Chevron is also cutting employees at Chevron Appalachia in a serious situation of assessing the ability to divest in this gas field cluster.
Oilprice commented, Shell’s decision or Chevron’s plan to divest shale gas assets was a move that showed two main trends in this area. One is to focus on core activities and remove recently underperforming assets. The second is to stop pouring assets into shale gas in the context of continuous low natural gas prices over time.
Negative market signals in the energy sector are preventing investors from pouring money into the US mining industry.
Oil and gas group Royal Dutch Shell on April 30 said it had a net loss of 24 million dollars (22.1 million euros) in the first quarter due to the collapse of crude oil prices. Shell, which made a net profit of $ 6 billion last year, said it expected the difficulty to be even more fierce in the second quarter of this year, due to facing the historic decline in oil prices because coronavirus pandemic.
Like all of its competitors, Shell was particularly affected in March from falling prices and extending through April to negative oil prices. The oil market is facing a sharp drop in demand due to the paralysis of many economies, while the storage capacity is reaching the limit.
The group’s output has decreased 1% to 3,719 million barrels of oil per day. Shell said that in the second quarter, it will reduce or limit oil and gas production, as well as petrochemical activities.
This is a reduction of the company in the context of negative market movements, not by any impact efforts in the US.
Shell General Manager Ben van Beurden spoke of “extremely difficult conditions” that led the group to take a series of measures to minimize the impact of oil shocks. On April 30, he announced his decision to reduce the dividend of the group, as the prospect of oil prices remained low for a long time. This is the first time Shell has reduced its dividends since the 1940s.
A day earlier, Shell’s big rival, BP Group, announced a loss of $ 4.4 billion in the first quarter and BP’s boss, Bernard Looney, warned that there would be job cuts by the end of this year. .
So far, in the face of negative oil prices, countries participating in the OPEC + mechanism are actively implementing a record oil production cut to 9.7 million barrels for the global market.
|CEO of Royal Dutch Shell Plc, Ben van Beurden|
Meanwhile, the US has not taken any action to control supply.
Ryan Sitton, one of the three executive members of the Texas Railroad Commission (RRC), which regulates Texas oil production, once proposed a 10% reduction in output, if Saudi Arabia and Russia are also willing to cut 10 % of production before the COVID-19 pandemic. However, he rejected his proposal a day before the Commission vote because it was still too late to implement.
Observers said that the reason why Washington did not want to fulfill its commitment with OPEC + because the US Government could not afford to offset the cost of the US energy industry from making cuts due to policies for business loans. limitations and growth policies based on increased public debt.