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Shell’s North Sea deal expected within weeks ahead of M&A boom

Jillian Ambrose22 JANUARY 2017 • 8:00PM

Shell’s plans to sell off UK oil assets are expected to move ahead within weeks ahead of an M&A boom for the North Sea.

City sources have said that private-equity backed investment funds are expected to close in on asset sales from supermajor Shell as well as French energy giant Engie amid rising investor confidence in the oil market recovery.

In the wake of the oil price crash early last year industry experts predicted that cash strapped oil companies would streamline their portfolios by selling off assets to bargain hungry funds, but deals have been slow to emerge due to market volatility.

Shell is under pressure to sell $30bn worth of assets from its global portfolio after its takeover of BG Group while Engie, formerly GDF Suez, is steadily shifting away from capital-intensive high-carbon energy towards renewable power.

Shell’s oil and gas assets caught the attention of former Centrica boss Sam Laidlaw who was understood to be in talks with the major over a deal with his private equity backed investment fund Neptune.

The talks “went cold” late last year and Shell is understood to have entered talks with investment fund Chrysaor while Neptune pursues a deal with Engie.

Mark Andrews, KPMG’s head of UK oil and gas said: “Much has been made of the “dry powder” of private equity. The ongoing desire of the oil majors and utilities to refocus on core operations is seen by many as the primary catalyst for deal flow. Should the oil price remain stable, this is something to watch as valuing assets should become easier and less contentious.”

Simon Tysoe, a legal advisor on North Sea deals for firm Latham and Watkins said the new wave of M&A reveals a departure from previous North Sea trends.

In the past risk-averse private equity investors would tend to focus on oil services companies rather than ‘upstream’ oil and gas production, he said. But with the services sector likely to remain under pressure in a lagged response to the investment slowdown of 2016 investors are showing more interest in exploration and production.

The future cost of decommissioning aging assets has also emerged as a key deterrent to M&A in the UK’s declining North Sea basin, prompting a shift away from late-life oil assets towards younger fields which could help extend the life of the basin the long-term.

“If there is new capital moving into new projects it can only be a good thing for the North Sea,” Mr Tysoe said.

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