LNG

Shell has pulled out of its last high-profile upstream operation in California by completing the sale of majority stake in Aera Energy, headquartered in Bakersfield, and with around 13,000 wells in the state’s San Joaquin Valley producing oil and associated gas.

The divestment process involved Shell completing the sale of its 100 percent interest in Shell Onshore Ventures LLC which held a 51.8 percent interest in Aera Energy to two asset management firms for around $2 billion in cash with additional contingent payments based on oil prices.

Aera Energy was created as a joint venture between Shell and ExxonMobil and is California's second-largest oil and gas producer, accounting for nearly 25 percent of the state's production.

“The sale is part of Shell’s strategy to create a resilient and competitive Upstream portfolio by focusing on positions with high growth potential and a strong integrated value chain,” said Shell.

The European major will still be active in California, though with a lower profile from its other activities including LNG fuelling stations, gas and power trading and electric vehicle charging.

Canada Pension Plan Investment Board (CPP Investments) is partnering with Hamburg, Germany-based international asset management group IKAV to acquire Aera Energy.

California demands

“CPP Investments and IKAV intend to help Aera balance its energy transition efforts with the need to continue meeting California's conventional energy demands by investing in a renewable energy portfolio that will power Aera's existing operations,” they said.

“Over time, renewable power will be deployed across Aera's land holdings, while selected legacy oil and gas infrastructure will be repurposed to create carbon capture and storage capability,” the buyers explained.

Constantin von Wasserschleben, Chairman of IKAV, said his firm was aligned with CPP Investments in its commitment to achieving a smooth and sustainable transition to renewable energy.

“By delivering an energy solution at Aera that ties renewable growth with the safe and responsible operation of conventional energy assets, we are pursuing the right steps to balance California's energy demand with its future climate goals,” added Von Wasserschleben.

Bruce Hogg, Managing Director, Head of Sustainable Energies at CPP Investments, comments the Toronto-based firm’s investment in Aera Energy was consistent with a number of investments made to help California with its “green” energy policies.

“CPP Investments believes that enabling emissions reduction and business transformation in the energy sector can drive strong returns for long-term investors,” stated Hogg.

Williams, the owner of the largest US natural gas pipeline that underpins LNG feed-gas deliveries on the Gulf Coast and domestic supplies in the northeast, has signed an agreement with the largest Canadian pension fund for a US$3.8 billion joint venture in the prolific Marcellus and Utica Shale Basins in Pennsylvania and Ohio.

Williams and the Canada Pension Plan Investment Board have entered into a definitive agreement to establish the joint venture that will include Williams’ 100 percent-owned Ohio Valley Midstream system and 100 percent of Utica East Ohio Midstream system. Both are natural gas and gas liquids gathering and storage systems.

The Canadian pension fund will invest around US$1.34 billion for a 35 percent ownership stake in the joint venture company, while Williams will retain 65 percent ownership and will operate the combined business.

The fund has 20 million Canadian contributors and beneficiaries and at the start of 2019 had C$368.5 billion (US$276Bln) under management.

Analysts said that the fund was a surprise investor in US shale given the high proportion of Canadians who oppose hydrocarbon energy projects, even when thousands of jobs are on offer.

Williams, based in Tulsa, Oklahoma, owns the Transcontinental Gas Pipe Line (Transco) interstate system which in the past winter season delivered record amounts of natural gas to US distribution companies, power generators and LNG exporters because of the successful expansion in interconnections in recent years.

The Transco system extends almost 1,800 miles from South Texas to New York City and is part of the Williams network of 30,000 miles of interstate pipelines and natural gas storage facilities.

The abundant US natural gas supplies are being delivered into domestic markets when required as well as to liquefaction and LNG export plants. The LNG plants are set to double in number from three operational facilities to six by the end of 2019.

In addition to signing its joint venture with the Canadian fund, Williams also purchased the remaining 38 percent stake it did not already own in the Utica East Ohio (UEO) Midstream system from US company Momentum Midstream.

UEO is involved primarily in the processing and fractionation of natural gas and natural gas liquids in the Utica Shale play in eastern Ohio.

“Acquiring the remaining interest in UEO and forming a partnership with CPPIB continues to advance our already strong position in the Northeast,” said Alan Armstrong, President and Chief Executive of Williams.

“These transactions create a platform for continued optimization and growth, provide deleveraging, reduce capital spending on processing and fractionation capacity and unlock further synergies through combined operatorship of the systems,” he added.

Avik Dey, a managing director and head of energy and resource investments at the pension fund, said he was delighted to invest in the projects with Williams.

“The joint venture would provide additional exposure to the attractive North American natural gas market, aligning with our growing focus on energy transition,” said Dey.