Noreco to buy Shell Denmark upstream unit for $1.9 billion

Norwegian Energy Co. ASA (Noreco) has acquired from Royal Dutch Shell PLC the company’s upstream interests in Denmark via its shares in Shell Olie-og Gasudvinding Danmark BV (SOGU) in a deal valued at $1.9 billion. SOGU, a wholly owned Shell subsidiary, holds a 36.8% non-operating interest in the Danish Underground Consortium (DUC).

The deal, an agreement by Shell Overseas Holdings Ltd. with Altinex AS, a subsidiary of Noreco, is part of Shell’s strategy “to simplify its portfolio through a $30-billion divestment program,” said Andy Brown, Shell’s upstream director.

The transaction includes a 100% interest in Shell Olie-Og Gasudvinding Denmark Pipelines APS (SOGUP) held by SOGU. SOGUP owns a proportionate interest in the Tyra West-F3 gas pipeline.

Noreco will assume all of Shell’s existing commitments and obligations, including the Tyra redevelopment and the decommissioning costs associated with the assets. The sale includes Shell’s share of 67,000 boe/d of production in 2017. Shell Trading & Supply and Shell Energy Europe Ltd. will continue to hold oil and gas lifting rights from the SOGU assets for a period after the sale.

The effective date of the transaction is Jan. 1, 2017, “meaning the transaction price will be adjusted for the cash flows generated from that period until the deal closing, expected in 2019,” said RBC Capital Markets in an Oct. 16 research note. Shell expects cash received of $1.1-1.3 billion. “The transaction implies a headline value of $30,000/flowing boe, or about $18,000/flowing boe adjusting for the timing effect,” the analysts said, but noted the transfer of $1.1 billion in decommissioning liabilities is a positive for the company.

After the deal is completed, which is expected in 2019, local SOGU staff primarily dedicated to DUC will continue to be employed by their current entity, which will be owned by Noreco.

Following completion, Shell will retain a downstream presence in Denmark through AS Dansk Shell, which includes the Fredericia refinery. The network of Shell-branded retail stations in Denmark continues to be operated by DUC.