Shell Sells Norwegian Assets to E.ON for $893M

Royal Dutch Shell (RDSB.LN) Thursday said it has divested its 28% equity interests in the undeveloped Skarv and Idun fields for US$ 893 million. The agreement covers the licenses PL-159, PL-212, PL-212B and PL-262 in the Norwegian Sea.

The deal consolidates Shell's position in Norway, and improves E.On's access to equity gas, increasing the diversity of its upstream long-term suppliers.

E.On has a 15% stake in a planned gas export pipeline from the east of Norway to Sweden and Denmark called Skanled, which is set to come online in December 2012.

While equity holders in the pipeline are committed to the project, many have yet to source gas to flow through the pipe. E.On's latest buy-up will help cover its downstream commitments in Europe either through the new Skanled pipe to Sweden and Denmark, where it has end-user businesses, or to continental Europe or even the U.K. via Norway's existing gas export pipes.

E.On Ruhrgas' Chief Executive Wulf Bernotat said: "This is a vital, but not the last step in implementing our upstream gas strategy."

Shell said the sell-off of its stake in Skarv-Idun is part of the company's ongoing portfolio evaluation, and stressed that it remains fully committed to Norway's oil and gas industry, which Shell Norway's Managing Director David Loughman described as "a key area of growth within our European business."

Shell will become operator of Norway's giant Ormen Lange gas field in November, after it has started up. It also holds stakes in its Draugen field, the Gjoa development, as well as the Statfjord, Troll, Kvitebjoern and Valhall fields, and has an active exploration drilling program in the Norwegian Sea.

The adjacent fields Skarv and Idun are operated by BP PLC (BP) and Statoil ASA (STO) respectively. Plans for the development and operation of the fields was submitted to the Norwegian parliament for approval June 29, and the project is expected to come online in the third quarter of 2011, delayed from an original 2008 timetable.

Idun's resources comprise 11.9 billion cubic meters of gas, 1.2 million tons of natural gas liquids and 0.3 million cubic meters of condensate.

Skarv's resources comprise 16.4 million cubic meters of oil, 34.5 million cubic meters of gas, 4.5 million tons of natural gas liquids and 4 million cubic meters of condensate. The two-field project will have a gas export capacity of 18.4 million cubic meters a day, which will be shipped to Kaarstoe gas processing facility via the Asgard transport system.

E.On has said it wants to source 10 billion cubic meters of its annual gas supply from its own upstream projects and stakes.

The bulk of this will come from the western Siberian gas field Yuzhno-Russkoye, owned by Russian natural gas monopoly OAO Gazrpom (GSPBEX.RS).

Gazprom and E.ON are in the final stages of negotiating an asset swap deal under which E.ON will receive a 25% less one share stake in the gas field.

The other partner in the Yuszhno-Russkoye deal is BASF AG's (BF) wholly-owned oil and gas company Wintershall AG, which will also hold 25% less one share in Yuzhno-Russkoye. The Yuzhno-Russkoye gas field has proven reserves of around 700 billion cubic meters.

While E.ON strengthens its upstream Russian gas ambitions, the company is simultaneously developing fallback options to limit its dependence on Russia, Chief Executive Wulf Bernotat told Dow Jones Newswires in a recent interview by buying up stakes in more mature areas like the North Sea.

E.On Ruhrgas currently owns a 30% stake in the 30,000 barrels of oil a day Njord field, which is set to start export of gas in late 2007. E.On Ruhrgas' share of the gas production will be around 0.6 billion cubic meters a year. Njord is currently operated by Norsk Hydro ASA (NHY) however, Gaz de France (1020848.FR) will takeover later this year, once Njord's starts exporting gas.

The company also owns equity interests in ten licenses on the Norwegian continental shelf, or NCS, eight of which are located offshore mid-Norway and two in the northern part of the North Sea.

Shell's sale to E.on Ruhrgas is expected to close by the end of 2007, subject to regulatory approvals.

Jan Hromadko and Benoit Faucon contributed to this story

Copyright (c) 2007 Dow Jones & Company, Inc.