Shell Energy Transition Sparked Talks To Sell Norway Business

Summary

• Shell, Harbour Energy held talks in late 2022
• Talks included Norway, Italy, and several UK assets
• Shell is diverting focus to low-carbon, renewables

Shell (SHEL.L) held talks with Harbour Energy (HBR.L) to sell its Norwegian oil and gas fields in 2022 but could not strike a deal owing to gas price volatility and uncertainty over the long-term outlook, three company sources told reporters.

London-based Shell has said it will center its oil and gas operations in nine basins across the globe, sparking a growing internal competition among assets as it aims to gradually shrink its oil and gas output and expand renewables and low-carbon operations to reduce its greenhouse gas emissions.

A sale of Shell’s oil and gas portfolio in Norway, where it has been for over 11 decades, would indicate a continuing retreat from the North Sea by the world’s biggest energy companies which are focusing investments on newer, more profitable basins.

Shell and Harbour Energy would not comment.

Shell shares slightly changed at 1145 GMT, while Harbour Energy’s rose by 2.5%.

Negotiations with Harbour Energy, the leading British North Sea producer, got to an advanced stage towards the end of last year, the sources said, just as Norway strengthened its position as Europe’s top natural gas supplier after Russia sent its troops into Ukraine.

Shell and ConocoPhillips (COP.N) are the only remaining two oil majors to operate offshore fields in Norway, while TotalEnergies (TTEF.PA) only holds stakes in non-operated fields. Talks with Harbour Energy included Shell’s assets in Norway, several ageing assets in the British North Sea, and its small-scale operations in Italy, the sources said.

Shell’s new chief executive Wael Sawan, who took over from Ben van Beurden on Jan. 1 after his nine-year tenure, is not currently reviewing these assets, two of the sources said.

Windfall Tax

Harbour Energy, headed by CEO Linda Cook, wants to diversify its operations beyond the British North Sea after the government imposed a 35% windfall tax on oil and gas producers, taking the total tax rate to 75%, one of the largest in the world.

Shell’s hopes of increasing its oil and gas production in Norway were dealt a blow in 2022 after partners in its Linnorm gas discovery could not settle on its development as a standalone field, sources said. It is also a partner in the Ormen Lange Phase 3 project, the country’s second-biggest gas field.

British rival BP (BP.L) has a minority stake in independent oil and gas firm Aker BP, the second biggest Norwegian producer, while both Chevron (CVX.N) and Exxon Mobil (XOM.N) divested their offshore assets in Norway completely in 2018 and 2019, respectively.

Beyond oil and gas, Shell takes part in several major renewables and low-carbon projects in Norway including a biofuels plant, offshore wind blocks, and the Northern Lights carbon storage and use project.

Shell’s annual report shows it owns stakes in 21 Norwegian oil and gas production licenses at the end of 2021, including a 45% stake in the Knarr field, a 17.8% stake in Ormen Lange, and 8.1% in the Troll oilfield.

It produced about 13,400 barrels of oil per day (bpd) and 490 million standard cubic feet per day (scf/d) in Norway in 2021, almost 7% of the company’s total gas output.