Royal Dutch Shell is preparing to dispose of its 50 per cent stake in a Louisiana gasfield to Blackstone for $1.2bn, as the oil and gas group retreats from one of its souring investments in North America.
A person familiar with the situation said Blackstone, the private equity group, is set to acquire Shell’s stake in the Haynesville Shale formation, that rests under large parts of Arkansas, Louisiana and Texas, as soon as this week.
The person cautioned that deal talks could still fall apart. However, a deal would mark the latest sign of private equity groups seeking to swoop in and take advantage of struggling investments in gasfields.
Shell owns a 50 per cent stake in the Haynesville formation with the other half owned by Encana, the North American energy producer.
James Williams, president of WTRG economics, said: “Haynesville has drier, less valuable gas than in places like the Eagle Ford formation in Texas or the Marcellus in the northeast.
“The wells also tend to be quite deep. Total production reached about 10.5bcf per day in the second half of 2011, but has dropped to below 7bcf per day in the last year.”
He added: “Additionally Shell has dropped plans to build a gas to liquids plant that could have used the gas from Haynesville to make more valuable products like diesel and gasoline.”
In its latest results, Shell said it would write down $2bn from its struggling North American business, principally due to weakness from its gas assets. Ben van Beurden, who took over as Shell’s chief executive in January, has said the poor performance of the North American upstream business was a priority under his “fix or divest” mantra.
Shell, which has invested $25bn in unconventional oil and gas plays, has sought to sell more than 700,000 acres of US shale assets. Blackstone and Shell declined to comment. The Wall Street Journal earlier reported on the deal talks.
Oil majors have been shedding assets to focus attention on more lucrative investments in North America. Although oil and natural gas pumped from North American shale have proved a boon for many smaller independent producers, the world’s largest oil companies including Shell, BP and ExxonMobil have not been as successful in unlocking the full potential of the rock.
Private equity groups have sought to make money through shale gas and oil assets since the early 2000s. But prices dropped when supply grew, leading to a gas price crash in 2012 to a low of $1.90 per million British thermal units from a peak of $4.98 the year before and more than $15 in 2005.
Their ability to scoop up undeveloped gasfields, bore a few wells and then flip the land to larger energy companies became limited. In turn, private equity groups turned their attention to shale with proven deposits of natural gas liquids and oil, where profits are higher, and towards extraction rather than exploration.
Deals in the unconventional oil and gas space have been in focus particularly as investment groups bet on its longer-term future and new technologies create more efficient processes from drilling to transportation.
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