NEW YORK – 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.
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 for $639 million last year, part of a company plan to cut capital spending.
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.
“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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