Royal Dutch Shell plc, which had said earlier this year it would put its natural gas and unconventionals on the back burner, said it would sell 206,000 net acres in the Montney and Duvernay formations of Western Canada, 85% weighted to gas, to Tourmaline Oil Corp. for $1.037 billion (C$1.369 billion).
The assets being sold by affiliate Shell Canada Energy are a combination of developed and undeveloped lands, along with related infrastructure that currently are producing 24,850 boe/d weighted to dry natural gas and liquids.
"Shell retains a significant shale position in Canada and we are actively working to mature our attractive core asset base in the Montney and Duvernay," said upstream chief Andy Brown. "At the same time we are strengthening our shales business and creating shareholder value by selling assets that do not fit our near-term development plans."
The acreage being sold includes 61,000 net acres in the Gundy area of northeastern British Columbia and 145,000 net acres in the Deep Basin area of West Central Alberta. Tourmaline agreed to pay $758 million cash and offer shares valued at $279 million. Subject to regulatory approvals the transaction is expected to close by the end of the year.
The Deep Basin assets being sold consist of 382 gross sections, 154 of which are joint working interest with Tourmaline, and current production of 18,650 boe/d. Tourmaline also is acquiring Shell Canada's infrastructure in the Deep Basin, which includes three 100%-operated gas plants with estimated processing capacity of 200-225 MMcf/d and associated pipelines, which would provide Tourmaline with total operated processing capacity of more than 1 Bcf/d.
Tourmaline plans to add 100 MMcf/d of new production in 2017 from the Deep Basin by drilling 31 horizontal wells, which it said would fill the acquired asset capacity.
The Montney properties being acquired consist of 100% working interest in 101 section land blocks with current production of 6,200 boe/d from 25 existing horizontal wells. Estimated proved and probable reserves are 371 million boe, with an estimated 1,647 locations. Tourmaline plans to drill 13 horizontals on the Montney assets in 2017 and 54 horizontals in 2018.
Following the sale, Shell would retain close to 650,000 net acres in the two formations, with 430,000 in the Duvernay and 218,000 in the Montney.
Shell has a large shale/unconventional portfolio focused on North America and Argentina, and it has been maturing the portfolio as a growth option for beyond 2020. Gas and unconventionals are taking a backseat in the near term as the producer turns its focus to "cash engines," driven by deepwater and petrochemicals opportunities (see Daily GPI, June 7).
Shell also has material unconventional positions in the Permian Basin, Haynesville Shale, Appalachia and in the Vaca Muerta in Argentina. Production from Shell's Americas shales portfolio pro forma for the Tourmaline sale, is 250,000 boe/d.
Tourmaline, headquartered in Calgary, began active operations in the fall of 2008. Through a series of acquisitions and farm-ins it has assembled an inventory in the Deep Basin, Montney and the Peace River High Charlie Lake complex.
Including the effect of the acquisition and associated development, Tourmaline is expecting 2017 production of 250,000-260,000 boe/d, with 2018 production levels of 310,000-320,000 boe/d.