Repsol sells some LNG assets to Shell for $6.7 billion
MADRID -- Repsol will sell some of its liquefied natural gas assets to Shell for $6.7 billion, increasing Shell's LNG exposure and helping Repsol cut a heavy debt load, the companies said on Tuesday.
Shell will pay $4.4 billion in cash and assume $2.3 billion in financial leases and debt for a package of assets that would exclude a Canadian LNG import terminal that Madrid-based Repsol had originally also put up for sale. The Spanish company's liquefaction facilities in Peru and Trinidad and Tobago along with an LNG import terminal in Spain remain part of the deal, which is expected to close by the end of the year or early 2014.
Repsol said the sale will generate a pre-tax capital gain of $3.5 billion.
The deal will go a long way toward helping Repsol protect its investment-grade credit rating, which came under threat last year after its Argentine unit was nationalized. The transaction also underscores the changing dynamics in the global natural-gas trade as the U.S., which is experiencing a production boom, opens the prospect of becoming an exporter of the fuel.
U.K.-based Shell is making big bets on natural gas, predicting that its use will grow much more quickly than oil in the coming years. A Shell-led consortium this week secured Canada's third license to export LNG. Repsol's Canadian terminal, however, receives LNG but doesn't export it. Instead, the terminal regassifies the LNG and pipes it to southeastern Canada and the U.S., where prices have weakened amid excess supply. On Tuesday, Repsol said that low gas prices in the U.S. currently "do not allow the asset's medium- and long-term potential to be adequately valued."
The company said it would write down the value of the Canadian terminal, built in the late 2000s, by $1.3 billion.
After Argentina's nationalization of YPF in May 2012, Repsol came under pressure to lighten a heavy debt load. Its credit rating is on the brink of junk status. Repsol said the LNG sale would allow it to cut its net debt, excluding the debt its consolidates from a large stake in Gas Natural SDG, about in half, to $2.87 billion.
Repsol put its LNG assets up for sale last summer as part of a $5.2 billion divestment plan. Including the sale in early 2012 of some of its own stock and the LNG divestment, Repsol will have raised about $6.5 billion. The company said it will use much of the proceeds to bolster its oil and gas exploration activities.
Repsol said it had received interest from a dozen different parties for the LNG assets, but the number of potential buyers steadily narrowed. Russian state-controlled natural-gas giant Gazprom had reviewed the assets but decided not to bid, Deputy Chief Executive Alexander Medvedev said earlier this month. France's GDF Suez had also considered purchasing the LNG assets, its chief executive has said.
Shell, one of world's largest producers of oil, is increasingly focused on natural gas. It has interests in converting it into clean-burning diesel in Qatar, and is building giant LNG export facilities in Australia, Africa and Canada. Shell Chief Executive Peter Voser said earlier this year that he expects gas to play a significant role over the next 40 years with much higher growth rates than oil. In a statement, the company said it expects that the Repsol assets, once the deal closes, will provide immediate additional cash flow.
Dow Jones Newswires