Currently, Shell is assessing the interest in its 15 percent stake in MLNG Tiga Sdn, owner of an LNG plant in Sarawak located in Borneo. The sources, who have requested anonymity, say the deal could catch the attention of private-equity firms. Malaysia’s own Petroliam Nasional Bhd owns 60 percent of MLNG Tiga Sdn and preemptive privileges associated with the stake.
The deal is a part of Royal Dutch Shell’s endeavor to make $30 billion on the sale of assets through 2018 to assist in cutting the amount of borrowings. The plan came to fruition after the company’s acquisition of BG Group PLC influenced Fitch Ratings Ltd to reduce its credit rating. Data collected by Bloomberg reveals that in June, Royal Dutch’s debt swelled to $90.3 billion from the $52.9 billion debt recorded for last year.
According to MLNG Tiga’s website, the plant began operations in 1995 and was the third plant to be completed in the Petronas LNG complex in Sarawak. MLNG Tiga boasts a production volume of 6.8 million metric tons annually.
A rep for Shell did not immediately provide answers to questions sent via email. A spokesperson for Petronas said they could not yet make a comment on the matter.
Saul Kavonic is an analyst for Wood Mackenzie Ltd. In an email response to questions he wrote, “The pressure is on Shell to slim down its global footprint following the BG acquisition,” Kavonic continued, “Majors are also looking to remove mature, high ongoing-cost assets and rebalance towards growth and long-life ‘cash cow’ assets.”
In February, Shell CEO Ben Van Beurden stated to analysts that Europe’s biggest oil company sold over $20 billion in assets during 2014 and 2015 collectively. According to Van Beurden, it will probably experience disposals below $10 billion in 2016.
Another analyst at Wood Mackenzie in Singapore, Chong Zhi Xin said, “The MLNG Tiga plant should be relatively insulated from the supply glut in the market, as most of its supply is contracted on a long-term basis to buyers in Northeast Asia,” Zhi Xin continued, “This asset will probably be attractive to companies that are looking for a steady cash flow stream. There is also the benefit of developing a closer relationship with Petronas.”
The spokesperson also said that these matters are typically confidential. The Malaysian-based company, Petronas, said that they will also continue inspecting every offer it receives and evaluate each one based “on its own merits.” A spokesperson for Shell said through email that the company frequently receives pronouncements of interest in assets from many firms and will continue evaluating each proposal and opportunity as they are given.
Earlier this week, John Donovan blogged on Shell’s website about Royal Dutch’s effort to “turnaround” following “a boost in the past month on the back of an improvement in oil prices.” Reports say that after dropping in value in the last quarter, Shell shares have “clawed back” nearly 3% of their market capitalization over the last month.