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Shell Exits The Marcellus Shale, Losing $4.1 Billion And Raising Questions

May 05, 2020 11:50 AM ETShell plc (SHEL)NFG, CVX147 Comments
Josh Young profile picture
Josh Young


  • Shell is selling their Pennsylvania Marcellus asset for $541 million.
  • They bought it for $4.7 billion dollars.
  • Divestiture seems poorly timed considering North American natural gas fundamentals versus the rest of Shell's business.

Royal Dutch Shell (RDS.A) is selling their Pennsylvania Marcellus Shale asset to National Fuel Gas (NFG) for $541 million. This compares poorly to the price they paid to buy the asset from KKR (KKR) backed East Resources in 2010: $4.7 billion. Losing more than $4.1 billion on an asset round-trip, before factoring in capital spent on developing the asset, raises some additional questions about Shell's management and business model beyond those addressed in "Covid-19 Breaks The Super Major Business Model".

First the transaction. In the acquisition of the asset, it was disclosed that current production was 60 mmcf/d, and that it included "650,000 net acres of 'highly contiguous, operated acreage' in the region and 1.05 million net acres in the Marcellus Shale overall." In the divestiture of the asset, current net production is disclosed as 250 mmcf/d and net acreage is 450,000 acres. Likely substantial capital was spent developing the asset to increase production 4x, while a large portion of the lease position was allowed to lapse, with the acreage position declining from 1.05 million net acres to 450,000 net acres.

This raises a few questions and concerns beyond Shell's recent dividend cut, share price fall, and the oil and LNG price crashes that precipitated it. These include: 1) what was the vision for the asset and the company at the time of the $4.7 billion purchase? 2) what changed about the asset and/or company plan such that this same asset was sold for $500 million 10 years later? and 3) are there bigger problems at Shell that pushed it into a dividend cut at a time when peers maintained their dividends?

1) In reviewing Shell's annual report from 2010, the year it bought the Marcellus asset for $4.7 billion, and the "strategy" corporate presentation from 2011, the vision and

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This article was written by

Josh Young profile picture
Josh Young is the Chief Investment Officer of Bison Interests, an investment firm focused on publicly traded oil and gas companies. And he is the former Chairman of the Board of Iron Bridge Resources, which sold to Warburg Pincus and CPPIB backed Velvet Energy in 2018 for $142 million. He is a value investor primarily focused on energy stocks, natural resources stocks, and companies trading at low multiples to earnings, cash flow, or book value. He has presented at numerous investment conferences, including Platts, LD Micro, Oil & Gas Money, Louisiana Energy Conference, and the Global Resources Investment Conference and has been featured in media including Barrons, Bloomberg, Business Insider, Fox Business News, RT and Oil & Gas Investor Magazine. He is a graduate with honors from the University of Chicago in economics.

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