Shell
considers small North America energy deals even after BG
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[May 14, 2015]
NEW YORK (Reuters) - Royal Dutch
Shell Plc will consider small additions to its North America oil and gas
business, despite ruling out large acquisitions after its deal to buy BG
Group Plc, Marvin Odum, director of Shell's Americas exploration and
production business, said in an interview Wednesday.
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Shell has said its cash reserves are limited after the $70 billion
deal announced on April 8, the first major energy industry merger in
more than a decade that will bolster Shell's global presence and
increase its proven oil and gas reserves by 20 percent.
Still, the London-based major will consider smaller deals in North
American basins where it already operates, including the Permian
Basin in Texas and New Mexico, the Utica in Appalachia, and Western
Canada. Shell's North America business accounts for 15 percent of
its global oil and gas production.
The BG deal "doesn't make us shy away from a bolt-on," Odum said,
even though "it is hard to believe there is something big out there
that is compelling."
Any deals will be in locations where Shell already has operations,
Odum said, which likely rules out the Eagle Ford basin in South
Texas, for example, where Shell sold its acreage to Sanchez Energy
Corp <SN.N> for $639 million last year, part of a company plan to
cut capital spending.
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A sharp drop in oil prices since last summer has led to a slowdown
in the U.S. oil industry as companies idled rigs to save cash,
pushing down the value of oil assets such as wells and leases,
creating potential bargains.
U.S. oil prices have rebounded back toward $60 since hitting a low
near $40 a barrel in February, but hard times are expected to
continue for drillers and oil service firms, Odum said. The prices
that firms can charge for drilling and fracking services have fallen
by 30 percent since last year, in some cases more, Odum said, which
is squeezing revenues.
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"It is happening dramatically and happening quickly," Odum said.
Shell does not disclose its specific oil price forecasts, but is
still investing to take advantage of longer-term projects, Odum
said.
Even though investment remains strong in the U.S. energy sector, and
prices have bounced higher in recent weeks, it could be a while
before the outlook brightens for many firms.
"We don't see costs coming back yet," Odum said. "The supply side is
still stressed."
While Shell carries a conservative balance sheet and says it can
continue to fund energy production in a downcycle, certain projects
may not be approved and investments could be cut if oil prices stay
depressed over a span of years, he said.
(Reporting by Edward McAllister and Jessica Resnick-Ault)
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