Shell holds firm on Thai asset sale

A large difference between bid and asking prices is holding up the planned sale by Royal Dutch/Shell of two concessions in northern Thailand. A sale deal was scheduled to be put before a Shell shareholders' meeting on Sept. 9 for approval, but that has been postponed to a date still to be fixed. Names of companies negotiating for the Thai upstream interests, earlier valued at $300 million, have not been disclosed, but Shell said it is negotiating with more than one party.

Oct. 12, 1998

3 min read

David Knott
London
[email protected]

A large difference between bid and asking prices is holding up the planned sale by Royal Dutch/Shell of two concessions in northern Thailand.

A sale deal was scheduled to be put before a Shell shareholders' meeting on Sept. 9 for approval, but that has been postponed to a date still to be fixed.

Names of companies negotiating for the Thai upstream interests, earlier valued at $300 million, have not been disclosed, but Shell said it is negotiating with more than one party.

Nine international oil firms from the U.S., Europe, and Asia registered their interest in bidding for the concessions, the plum asset of which is Sirikit, the kingdom's first onshore oil field.

The assets put on sale include the 75% interest in the SI concession on which Sirikit is located. The field produces more than 22,000 b/d of crude oil and 60 MMcfd of associated gas.

The other asset is a 100% stake in Block B6/27, which covers an area of 1,300 sq km off the Chumphon coast. The block contains Nang Nuan, Thailand's first commercial offshore oil field, where production was halted in August 1997 because of technical problems.

Bargaining

Low oil prices and the projected slow price recovery in the future are believed to be encouraging bidders to try to drive a hard bargain with Shell.

The price for Brent crude oil fell from more than $21/bbl this time last year to about $14/bbl of late, and to a low of $11/bbl only a few weeks ago, triggered by excess oil supply and lower demand in recession-hit Asian countries.

Shell said in February that it wanted to sell the concessions belonging to Thai Shell Exploration & Production Co. to enable it to focus on larger-scale exploration and production activities.

Another reason given at the time was a wish by Shell to concentrate on its extensive petroleum refining and marketing business in Thailand, where it has operated for 105 years.

Sirikit upside

Shell expected to wrap up extended negotiations with bidders by the end of September with a view to signing a sale agreement in the middle of this month.

Yet Sirikit still has its charms for Shell. The Thai government recently granted Thai Shell the right to produce an additional 2 sq km alongside Sirikit, enabling it to bring three wells in the extension area on stream.

The three wells in the so-called Sirikit T area have increased Sirikit's total crude oil output by 1,000 b/d to about 23,000 b/d, according to a Thai Shell official.

Sirikit oil production currently comes from about 100 wells. The field has been in production for more than a decade, with 105 million bbl of oil produced.

Remaining proven oil reserves in Sirikit are estimated at 106 million bbl, which is enough to sustain the field's current production rate for another 10 years.

If the bids remain below Shell's expectations, however, the company will hold onto its assets. The Thai Shell official said, "Shell is not desperate to offload the concessions."