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The Guardian: BG snatches up Shell’s Nile delta cast-off

The Guardian: BG snatches up Shell’s Nile delta cast-off

“The reserves downgrade – which triggered the departure of its chairman of managing directors, Sir Philip Watts, and others – has turned the spotlight on Shell’s poor record for replacing reserves.”

Terry Macalister

Tuesday September 7, 2004

A massive asset sale by Shell that brought in $3.5bn (£1.9bn) in the first half of the year continued yesterday when the troubled oil group sold off some of its Egyptian interests for $235m.

The 40% holding in the Rosetta concession – which is already producing gas in the Nile delta region – was to have been bought by Kuwaiti interests. Britain’s BG stepped in, however, and exercised its pre-emption rights on the shares.

Shell said Rosetta had limited synergies with the rest of its business in Egypt and raising cash this way enabled it to “focus resources on higher-value opportunities”.

The latest shake-out comes on top of disposals in Bangladesh, the United States and Angola this year. The company has traditionally sold off about $2bn worth of what it deemed lower-grade interests every year.

But the crisis of confidence that hit Shell this year when it cut its proven reserve estimates by 20%, has triggered more vigorous action. The company increased its capital expenditure from $13bn a year to nearly $15bn this year.

Some of this cash has gone on overspends in places such as the Nigerian Bonga field and Russia’s Sakhalin project, but more money is also being pumped into new exploration and production.

The reserves downgrade – which triggered the departure of its chairman of managing directors, Sir Philip Watts, and others – has turned the spotlight on Shell’s poor record for replacing reserves.

It has fallen behind its biggest rivals, BP and ExxonMobil, so is attempting to make up lost ground.

The Middle East and north Africa are seen by all the oil companies as attractive for future business. Shell is at the forefront of efforts to open up Libya as well as the Western Desert in Egypt.

But it is also a good time to sell assets because soaring global crude and gas prices have caused their value to increase. There are buyers around because oil companies are awash with cash.

BG’s managing director for Africa, Stuart Fysh, described the Rosetta purchase from Shell as “an excellent opportunity” to increase its position to 80% in a high-quality concession in which it is already an operator.

The Rosetta concession has three development leases as well as a producing field which are at present the subject of negotiations with the Egyptian government.

Shell is in the middle of a wide-ranging review of the future of the business and is due to outline a new strategy on September 22. In November it will give details of action over an even more critical issue: the future structure and governance of the company.

$3.5bn and counting…

Shell raised $3.5bn (£1.9bn) in the first half of 2004:

Bangladesh Upstream assets

United States Power assets, product pipelines, Delaware City Refinery, Teneska Power Company

Angola Block 18

Portugal Service stations and distribution assets

UK Some upstream assets

Germany A 5.27% interest in VNG downstream gas distribution company

Mexico Gas pipelines

China Shares in Sinopec

Further sales since July 1:

Peru Divested service station network, industrial and local marine fuels business to Enap

Thailand Sold its 64% share in Rayong refinery

Spain Intention to sell retail and commercial businesses

Japan Sold 9.96% of the total shares in Showa Shell to Saudi Aramco

Egypt 40% stake in Rosetta concession to BG

http://www.guardian.co.uk/business/story/0,3604,1298563,00.html

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