Company News: Shell to end dual ownership; still evaluating reserves

Nov. 8, 2004
The boards of Royal Dutch/Shell Group and Shell Transport & Trading Co. (ST&T) have proposed to shareholders that the companies be merged under a single parent company, Royal Dutch Shell PLC.

The boards of Royal Dutch/Shell Group and Shell Transport & Trading Co. (ST&T) have proposed to shareholders that the companies be merged under a single parent company, Royal Dutch Shell PLC.

The move to formally combine the group's British and Dutch parent companies under a single board and a single executive was prompted by criticism from investors who said that the old structure hindered transparency and financial accountability.

That criticism escalated this year after Shell announced in January its first in a series of four adjustments that ultimately lowered proved reserves by 24%, mainly through reclassification. Shell has said a fifth reserves adjustment might be coming.

In recent midstream company news:

  • Royal Dutch/Shell, ExxonMobil Corp., and the Netherlands government reached an agreement in which the government will pay $3.56 billion to increase its stake of the pipeline assets of NV Nederlandse Gasunie, the Netherlands.
  • Valero LP, San Antonio, agreed to buy Kaneb Services LLC and Kaneb Pipe Line Partners LP, Dallas, in a $2.3 billion cash-stock deal that will create the largest US terminal operator and the second-largest petroleum liquids pipeline operator.
  • Gaz de France agreed Oct. 18 to buy a 51% stake in Romanian gas distributor SC Distrigaz Sud AG for $388 million, as previously negotiated with Romanian officials (OGJ Online, Aug. 25, 2004).

In recent upstream company news:

  • An affiliate of Citation Oil & Gas Corp., Wayman, Kan., said it would acquire Houston-based Anadarko Petroleum Corp.'s southeastern Colorado producing properties for $107.6 million.
  • Edge Petroleum Corp., Houston, agreed to acquire oil and natural gas properties in South Texas from Houston-based Contango Oil & Gas Co. for $50 million.
  • A unit of Endeavour International Corp., Houston, agreed to acquire Lundin Petroleum AB's majority interest in OER Oil AS, a private Oslo-based independent, for $26 million. Closing is expected by yearend and is subject to government approvals.

A unified Shell

The new unified Shell will be based in The Hague. Its primary stock listing will be in London with a secondary list in Amsterdam and American Depositary Shares trading in New York.

Under the outlined proposal, Jeroen van der Veer, chairman of Shell's committee of managing directors, is to become the first chief executive. Shell Chairman Aad Jacobs will be the nonexecutive chairman of the new company until his previously planned retirement in 2006.

The proposal involves a public exchange offer in which Shell shareholders will be offered 60% of an ordinary share of Shell and ST&T shareholders will be offered 40% of an ordinary Shell share.

The transaction is expected to be complete in May 2005, and the first report of combined 6-month financial results is expected June 30, 2005.

Meanwhile, Shell has warned that it might make another revision to its oil and gas reserves. It is considering an additional reduction of 900 million boe.

Executives did not elaborate on which fields might be affected, saying only that the adjustments came after the company started reviewing its reserves well-by-well rather than field-by-field.

The warning came in Shell's earnings report late last month. Standard & Poor's Ratings Services, New York, placed its AA+ long-term ratings on Shell and its subsidiaries on CreditWatch with negative implications. S&P affirmed its A-1+ short-term ratings on the parent and its affiliates.

Gasunie

The Netherlands' Ministry of Economic Affairs said the government plans to acquire 100% interest in Gasunie's transportation division.

That transaction is expected to close by mid-2005.

Gasunie is to be divided into a transportation business and a merchant business. The merchant business will remain a joint venture of the Netherlands, Shell, and ExxonMobil.

Valero-Kaneb

Valero said that the total value of the acquisitions of Kaneb Services and Kaneb Pipe Line is $2.8 billion, which includes $500 million in assumed debt and other liabilities.

The transaction, expected to close in first quarter 2005, remains subject to approvals from shareholders and antitrust regulators.

Kaneb Services and Kaneb Pipe Line will become wholly owned subsidiaries of Valero, a master limited partnership owned 46% by refiner Valero Energy Corp., the general partner.

After the purchase, Valero will own 6,900 miles of products pipeline, 800 miles of crude oil pipeline, and a 2,000-mile anhydrous ammonia pipeline. It also will own 101 terminals in 30 states, Canada, Mexico, the Netherlands Antilles, Australia, New Zealand, and the UK.

The combined system will include four crude oil storage tank facilities having a combined capacity of 85 million bbl.

Valero will pay $525 million, or $43.31/share, for Kaneb Services. In addition, Kaneb Pipe Line will receive Valero stock worth about $61.50/share.

Valero Pres. and CEO Curt Anastasio said the acquisition will be accretive to cash flow and is expected to produce about $25 million/year in operating savings. Upon closing, he will retain his titles, and Bill Greehey will remain chairman of the general partner.

GDF in Romania

GDF's increased stake in Distrigaz Sud bolsters the French company's position in central and eastern Europe. GDF initially will acquire a 30% stake, which later will be increased to 51%.

Distrigaz Sud operates a 13,400-km gas pipeline grid in southern Romania with gas sales of about 5.6 billion cu m/year. Romania will continue to hold the 49% interest in Distrigaz Sud.

Germany's Ruhrgaz AG, a subsidiary of E.On AG, has been chosen to acquire for $383 million a 51% stake in SC Distrigaz Nord SA, another Romanian gas distribution company. Initially, Ruhrgaz will acquire a 30% stake, which later will increase to 51%.

Citation-Anadarko

Anadarko's property package being acquired by Citation includes an estimated 9 million boe of proved reserves as of July 1, the proposed effective date of the sale. Closing is expected by yearend.

The properties have current net production of 3,000 boe/d and are 80% operated. The reserves are 90% oil and nearly 100% developed.

The divestures are part of Anadarko's previously announced plan to reduce its debt and buy back stock.

Anadarko plans to sell properties representing 15% of its yearend 2003 proved reserves and 25% of its current oil and gas production, with aftertax proceeds expected to exceed $2.5 billion (OGJ Online, June 10, 2004).

Edge in South Texas

Edge Petroleum said the properties, which lie in Jim Hogg County in South Texas, produce primarily from the Queen City formation.

As of July 1, the properties contain an estimated 16 bcfe of proved producing reserves and 2.3 bcfe of proved undeveloped reserves.

The properties include 38 nonoperated producing wells with an average 68% working interest and 52% net revenue interest. Current net production from the properties is 12 MMcfde, 90% gas.

EIC to buy OER interest

OER produces 2,000 boe/d from its 2.5% interest in Njord field and its 4.4424% interest in Brage field, both off Norway and operated by Norsk Hydro AS. OER had 2.8 million boe of proved and 4.1 million boe of probable reserves as of Jan. 1.

In addition, OER also has 49% working interest in the Agat gas-condensate discovery operated by RWE Dea AG, Hamburg, exploration upside in the Brage, Njord, and Agat areas, and about $12 million in future tax benefits.

EIC, which became a public company earlier this year, in September was awarded nine UK North Sea production licenses covering 18 blocks. It is also prequalified as a licensee on Norway's continental shelf and holds interests in a Thailand gas development project.

Lundin said it recouped 5.5 times the January 2003 outlay for 75.88% of OER and hopes to increase investment in Norway through a single subsidiary, Lundin Norway AS.

Lundin Norway holds a diverse portfolio off Norway, including interests in the producing Jotun field, Alvheim development project, and recent Hamsun field discovery.