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The share price of Royal Dutch Shell (LSE:RDSA) moved modestly downward today, perhaps in response the company’s announcement that of its “swap” of natural gas assets with Chevron in Western Australia. Shell opened the day at 2,259 and declined steadily to 2.238 by 1:00 pm.
Summary of the Swap
In the simplest of terms, according to the binding agreement, Shell will exchange its 33.3% interest in the WA42R and WA205P tiles in the Clio-Acme fields for Chevron’s 16.7% interest in certain East Browse and 20% interest in West Browse titles. In addition, Shell will fork over an additional US$450 million to balance the swap.
What Does it Mean for Shell?
The key factor for Chevron is that it will have 100% ownership in the licenses that contain the Clio and Acme fields. For Shell, the assets swap results in increasing its stake in the East Browse field from 8.33% to 25% and upping its stake in the West Browse fields to 35%. East and West Browse are operated by the Australian company Woodside with BP and BHP Billiton also invested. The Browse fields are estimated to contain some 15.5 trillion cubic feet of dry gas and 417 million barrels of oil condensate.
How Does This Benefit Shell Long Term?
The significant reserves in the Browse field alone are an incentive for Shell to increase its stake to be in a more equalized position with partners BP and BHP Billiton. A number of reports have indicated that there has been tension amongst the stakeholders as how best to process the gas for export. By removing Exxon from the mix, it is thought that consensus will be easier to obtain. The Browse project has numerous obstacles to overcome given that it is in very deep waters and a long distance offshore. The project has also had its share of protests from environmentalists and land owners. The minimization of stakeholders is more than likely going to better enable the project to overcome technical and political problems much more efficiently, thus getting product to market more quickly and beginning to get some return on their investment in a timelier manner.
For Shell, this is just the latest in series of moves that further demonstrate the company’s long term commitment to growing in the Australian region. Australia is expected to surpass Qatar as the leading exporter of LNG by the end of this decade.
Corporate Comments
Whilst some shareholders may be a bit skittish about the move, Shell’s Upstream International Director, Andy Brown, said, “This is a good deal, not only because it aligns with Shell’s strategy of bigger direct stakes in key gas resources, but because it also helps to simplify the ownership of the Browse gas fields. The Browse gas fields are a key LNG development opportunity for Australia. We’re committed to continue working with the other JV participants and key stakeholders to secure the best possible development plan for this important resource.”
