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Shell’s BG Group takeover, company refocus could impact Alaska
Shell’s $66 billion takeover of BG Group, one of the world’s largest natural gas companies, has sent shock waves around the energy world. But will any of those merger vibrations reach Alaska, especially given Shell’s multi-year attempts to explore in the state’s Arctic offshore?
One thing does seem clear. In the interest of maintaining its debt at an acceptable level, and given the new business opportunities that the amalgamation with BG Group will bring, Shell anticipates cutting back on its exploration spending as part of a complete rework of the company’s business strategy. And the company merger would seem to indicate a focus by Shell on natural gas, natural gas liquids and deepwater developments.
Shell’s Alaska venture is part of what the company characterizes as its long-term opportunity set, a set of programs designed to establish a future resource base and which includes heavy oil development, and exploration and development in regions such as Iraq and Kazakhstan.
“We are going to take steps to refocus the company, particularly in the longer term opportunity set,” Ben van Beurden, Shell CEO, commented during an analyst call following the announcement of the BG Group deal. “We plan to reduce our exploration activity and exploration spend, reflecting of course BG’s development pipeline and the uptick in Shell’s exploration performance recently, particularly in the Gulf of Mexico.”
No specifics Simon Henry, Shell chief financial officer, said that BG’s undeveloped resource positions, especially in Brazil, coupled with opportunities arising from Shell’s exploration success in the Gulf of Mexico, will enable Shell to “dial back” on its exploration for several years. However, neither of the Shell executives was willing to be specific on which projects might be dropped as part of Shell’s new strategy. Beurden said that details of the revised strategy would not emerge until after the BG deal closes. Shell has indicated that closure will likely happen early in 2016.
The Independent, a British newspaper, has reported Henry as having said that Alaska is a key frontier basin that Shell will “vigorously pursue” if the company finds large volumes of oil, but that the company could equally well leave the state if exploration fails to yield satisfactory results.
“If we are able to drill this year, see what is in those reservoirs, it will change our thinking one way or another,” the Independent reported Henry to say. “It’s a bit of a binary outcome - but, if the value is there it’s not something you walk away from … it’s only a small number of wells that will tell us what the potential of the play is.”
Curiously, Shell’s acquisition of BG will give Shell working interests in some Arctic onshore leases. BG Alaska E&P Inc. owns interests in 94,508 acres of state leases in the southern part of the North Slope, as well as interests in 566,234 acres of federal leases in the National Petroleum Reserve-Alaska. The company acquired the leases in the mid-2000s during a period of heightened interest in potential natural gas development in the Brooks Range foothills region. The leases have lain dormant for a number of years.
- Alan Bailey
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