Shell takes Repsol LNG asset sale spoils
Spain's Repsol on Tuesday agreed to sell the majority of its LNG assets to Shell, in a move that will expand the Anglo-Dutch major's already significant LNG portfolio and reduce the Spanish producer's debt burden.
Shell said that it will pay $4.4bn in cash to Repsol and in return will secure a greater LNG stronghold in the Americas and a firmer position in the Atlantic Basin, as the deal adds 7.2 million tonnes per annum (mtpa) of LNG in long-term offtake agreements, as well as over 4mtpa in equity LNG plant capacity.
Through the deal, Shell will assume control of minority stakes across the four-train 14.8mtpa Atlantic LNG project, the Peru LNG liquefaction plant and a power plant in Spain, as well as associated sales contracts, loans and debts.
The deal also includes $2.3bn in financial leases and debt. The divestment agreement consists of all of Repsol's LNG shipping assets, including those held through the STREAM LNG joint venture with Barcelona-based Gas Natural Fenosa, a Repsol spokesman said.
The deal excludes the sale of the Canaport import facility in Canada, which was understood to have delayed a quicker resolution to the deal when Repsol initially offered its LNG assets as a whole package in mid-2012.
Shell expects the transaction to close in the second half of 2013 or early 2014, subject to regulatory and other approvals.
"Shell's worldwide LNG supply position and customer base means we are uniquely positioned to add value to Repsol's LNG portfolio, including through Shell's trading capabilities," Peter Voser, CEO of Shell, said.
"By optimising the combined portfolios, we will increase our ability to areas that need it the most, adding value for Shell, our partners and our customers," Voser added.
Once completed, the company's net equity LNG in Trinidad and Peru will total 4.2mtpa, consisting of: Atlantic LNG trains 1-4 in Trinidad at 20-25% of equity per train; 4.45mtpa of capacity from Peru LNG's liquefaction plant with a 20% equity stake and 100% of the offtake volumes; as well as a 25% equity stake in the 800 megawatt (MW) Bahía de Bizkaia Electricidad power plant in Spain. Madrid-based Repsol said it will maintain its holdings in producing upstream assets in Peru and Trinidad.
In addition to the sale, Repsol and Shell have agreed to a 10-year supply contract for the Canaport regasification terminal in New Brunswick, through which Shell will deliver 100,000 tonnes per annum to the facility.
Repsol had originally included the Canaport facility among the assets it was hoping to sell off, but a lack of interest in the asset forced the company to re-evaluate the sale of its 75% stake.
"The North American facility is not included in the sale process as the low gas prices in the US market do not allow the asset's medium and long-term potential to be adequately valued," Repsol said in a statement.
Shell optimising
The deal also gives Shell the rights to offtake all the volumes from the 4.45mtpa Peru LNG liquefaction facility in Pampa Melchorita. However, Shell will also have to take over Repsol's existing 15-year long-term contract to supply Mexico's state-run Federal Electricity Commission (CFE) with up to 3.68mtpa of LNG from Peru into the Manzanillo terminal. The contract, originally signed in 2007, is understood to be priced at a discount to US Henry Hub prices, a significantly lower rate than global prices and the Peruvian and Mexican governments have yet to reach an agreement to renegotiate the contract.
Leslie Palti-Guzman, energy analyst at Europe Group consultancy said the asset sale provides a boon for Shell's global portfolio, particularly for the its North American position, adding that securing Trinidad and Peruvian volumes has increased its exposure to Henry Hub volumes.
"They have potentially more gas on gas indexation in their portfolio than they used to have before," Palti-Guzman said. "It will be interesting to see who is going to get this gas and if it's going to sell to Mexico."
Shell is also obliged to supply the Altamira terminal on Mexico's Gulf coast, nominally via a 5 billion cubic metres (bcm)/year Henry Hub-indexed contract and industry sources said that having access to Peru and Trinidad would allow the Anglo-Dutch major to optimise its portfolio to supply contracts that were concluded prior to the US shale gas revolution and the shift in global market dynamics.
"They are currently having to supply Altamira with expensive purchases made on the spot market or from or their Nigerian portfolio. By gaining access to Trinidad and Peru, they not only are reducing the shipping distance to Mexico, but they are mitigating any potential losses from supply deals made in a previous era and freeing up the Nigerian LNG to supply other markets," said one source.
Repsol debt reduction
The announcement on 26 February brings an end to Repsol's LNG divestment process which started in June 2012, and which was understood to have solicited bids from Chinese state energy company Sinopec. Russia Gazprom, France-headquartered GDF SUEZ and India's GAIL in partnership with EDF.
At that time, the company said its LNG assets would be sold as part of its 2012-2016 strategic plan, which was aimed at salvaging its credit ratings that were downgraded in the aftermath of the Argentine government's April 2012 seizure of its majority stake in South American oil and gas producer Yacimientos Petroliferos Fiscales (YFP).
Repsol said that the asset sale would reduce its debt by more than half to €2.2bn ($2.88bn). The company has divested more than €5bn in assets over the past year in a bid to upgrade its credit rating.
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