Shell Sells Oil Refineries, Gas Stakes for $2.5 Billion
Royal Dutch Shell sold three French oil refineries and gas field stakes in Norway for $2.5 billion on Thursday, pressing ahead with its strategy to divest lower-returning assets.
Swiss-based oil refiner Petroplus will buy oil refineries at Petit Couronne and Reichstett Vendenheim for $875 million, while Basell has agreed to buy the Berre-l'Etang plant for $700 million.
The deals reflect Shell's strategy to focus on faster-growing regions and analysts said the sales may signal the company is betting that a period of rising profit from oil refining in Europe may not last.
"These are peripheral assets, not the highest-returning ones that Shell has in the portfolio, so they are getting rid of them at the top of the cycle," said Jason Kenney, analyst at ING, of the French refineries.
"They may think refining margins will weaken from here," said Kenney, who has a "hold" rating on Shell shares.
Shell Chief Executive Jeroen van der Veer is aiming to shift the oil-refining focus of the world's second-largest fully publicly traded oil company to Asia, a region with faster growth in fuel demand than Europe.
"In the downstream business, we move from west to east in the world," he said in February. "Why? Quite simple, because the growth is there."
Shell's refining business helped it to outshine rivals such as BP in the second quarter. The company posted a 20% rise in profit to $7.556 billion due to wider refining margins.
Analysts said the sale to Petroplus was at a low price.
Shares of Shell were down 1.3%, while Petroplus was up 5.3%.
"This is exceptionally low, although we believe this reflects the low underlying level of profitability of the two assets," Citigroup said in a research note.
The refineries are relatively small. Petit Couronne and Reichstett Vendenheim are able to process a combined 220,000 barrels per day of crude. Berre-l'Etang has a capacity of 80,000 bpd.
The deals will leave Shell with no refineries in France, but Shell said it will continue to operate its network of petrol stations and other businesses in the country.
Asia is expected to account for much of the growth in world oil demand in coming decades. Fuel use in France fell 0.3% in 2006, according to statistics compiled by BP, while in China it rose by 6.7.
Shell also said on Thursday it agreed to sell stakes in two undeveloped gas fields to E.ON for $893 million.
The sale of stakes in the Skarv and Idun fields in the Norwegian Sea comes as Shell is developing larger projects to revive growth in oil and gas output.
"Shell has larger commitments, particularly in Canada, that it has to provide for, not just in terms of capital but also in focus," Kenney said of the Norwegian sale.
In Canada, Shell is investing billions to extract oil from tar sands, a relatively costly process but one that allows access to vast reserves.
E.ON said it plans to invest another $1.4 billion in the gas fields in addition to the purchase price.