KPC Review

Shell ... divesting part of Wheatstone stake

Shell ... divesting part of Wheatstone stake

Kuwait buys Shell Australia gas stake

Kufpec is focused on using Kuwait’s oil wealth to diversify into energy projects abroad. Wheatstone, a huge Australian LNG project, is about 25 per cent complete

ROYAL Dutch Shell has agreed to sell stakes in a gas project in Western Australia for $1.14 billion to a Kuwaiti firm as part of the oil company’s drive to improve return on investment.

Shell is selling an 8 per cent stake in the Wheatstone and nearby Iago gas fields and a 6.4 per cent stake in the related Wheatstone liquefied natural gas (LNG) project to the Kuwait Foreign Petroleum Exploration Company (Kufpec).

The move raises Kufpec’s holding in the Chevron-led LNG project, in which the state company is already a partner, to 13.4 per cent. “We are making hard choices in our worldwide portfolio to improve Shell’s capital efficiency,” Shell chief executive Ben van Beurden says.

“We are refocusing our investment to where we can add the most value with Shell’s capital and technology,” he says, adding that the company would remain a major player in Australia’s energy industry.

Kufpec is focused on using Opec member Kuwait’s oil wealth to diversify into energy projects abroad. Wheatstone, one of the super-sized Australian LNG projects due to come on stream over the next few years, is about 25 per cent complete.

With some 80 per cent of its future production committed to Asian buyers, the project is scheduled to cost about $29 billion. Chevron expects capital spending on it to peak this year.

Shell issued a “significant” profit warning for the fourth quarter, in which it detailed across-the-board problems, less than three months after its third-quarter profits undershot analyst forecasts.

Analysts and shareholders say the company’s weak results would push the world’s number-three investor-controlled energy firm to keep a tighter control on costs after it says 2013 capital expenditure would peak at about $45 billion.

Since van Beurden began working alongside outgoing boss Peter Voser at the start of the fourth quarter, the company has cancelled plans to build a gas-to-liquids plant in the United States, raising investor hopes of a tighter spending regime.

Shell is not the only big energy company facing increasing investor pressure to hold down spending as costs rise and prospects for higher oil prices wane. At $1.14 billion, the Wheatstone disposal kicks off a year in which Shell says it would significantly step up disposals to keep cash flowing in.

Recent media reports have suggested the company’s divestments could total $15 billion this year, equivalent to around 6.5 per cent of its $232 billion market capitalisation. “The thing that Shell has to do is accelerate divestments and re-instill capital discipline so in that vein it’s positive,” Santander analyst Jason Kenney says.

Analysts and bankers say another of Shell’s Australian assets, its 23.1 per cent stake in Australian group Woodside Petroleum – worth over $6 billion at current prices – could be put on the block.

Chevron has a 64.14 per cent stake in Wheatstone, which is due to come on stream in 2016. The other stakeholders are Apache Corp with 13 per cent, Tokyo Electric Power Co with 8 per cent and Kyushu Electric Power Co with 1.46 per cent.

Through the acquisition, Kufpec will add 139 million barrels of oil equivalent to its resource base, thereby meeting its strategic reserves target for the next four years.

Average production net to Kufpec will reach an anticipated 18,350 barrels of oil equivalent per day by 2018, with first LNG production commencing in late 2016. Importantly, Kufpec can in the future supply the LNG directly to KPC on commercial terms.

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