The two companies announced late Tuesday that Shell would acquire Repsol’s LNG businesses for $4.4 billion in cash and $2.3 billion in financial leases and assumed debt. The sale attracted more than a dozen bids, according to Repsol, and resulted in a price that was more than double pre-sale estimates, according to Bernstein Research.

Oil companies are trying to add to their positions in liquefied natural gas, which Shell believes will roughly double in global consumption between now and 2025 — and operating LNG facilities are rarely offered for sale.

But the appeal of LNG goes beyond rising world energy use, as the technology that creates the product — supercooling natural gas so that it can be transported by ship — is helping to turn natural gas into a globally traded commodity like oil. There are still wide regional differences in natural gas prices, with North America by far the cheapest, Asia highest and Europe in the middle.

Through astute trading, Shell believes it will be able to squeeze more than $1 billion per year in cash from the new LNG assets it is acquiring, according to a spokesman. Shell has roughly 8 percent of the global LNG market — the largest among Western oil companies.

“Shell’s world-wide LNG supply position and customer base means we are uniquely positioned to add value to Repsol’s LNG portfolio,” Shell’s chief executive, Peter Voser, said in a statement.

For Repsol, the divestment marks a significant step in its efforts to rethink its strategy and make up for the unexpected loss last April of YPF, the Argentine company that was nationalized by President Cristina Fernández de Kirchner and had been by far Repsol’s biggest foreign asset, as well as holding almost half of its proved reserves.

Repsol is seeking at least $10.5 billion in compensation from Argentina for the seizure of YPF. But even if the company wins an international trade ruling, it would be a struggle to get Buenos Aires to comply with it.

Following the YPF seizure, which triggered a plunge in Repsol’s share price, Repsol announced last June that it was lowering its dividend payout and that it planned to sell off up to €4.5 billion of non-core assets. The company said last year that it was aiming to cut as much as €9 billion of debt.

LNG accounted for about 12 percent of Repsol’s operating profit for the first three quarters of 2012, according to Bernstein.

Repsol has also been under pressure to improve its debt situation in order to maintain its investment grade rating and avoid a possible downgrade to junk level from the main credit rating agencies.

On Wednesday, Fitch said in a statement that Repsol’s LNG divestment “improves Repsol’s credit metrics, but any positive rating action is dependent on the post-tax asset disposal proceeds of approximately 2.7 billion euros being fully utilized to reduce financial indebtedness.”

The credit rating agency added that if Repsol actually ended up using the money to pay down debt rather than spending it or holding it on its balance sheet, a credit rating upgrade was likely.

For Shell, the deal brings Repsol’s stakes in a major LNG project in Trinidad and Tobago as well as a smaller one on the coast of Peru. Those locations help fill out the company’s global portfolio, as Shell did not have access to LNG in the western Atlantic.

“This is a perfect complement to what we have,” Maarten Wetselaar, Shell’s executive vice president for Integrated Gas, said by telephone from South Korea. “We get a West Atlantic position and an East Pacific position. These were blind spots.”

Once the deal closes, the company will be able to transport LNG from Trinidad to Latin America, rather than bringing the fuel from Qatar or elsewhere.

“What Shell is trying to do is get a big set of LNG supplies in order to cut shipping costs and gain flexibility, ” said Iain Pyle, an analyst at Bernstein Research in London.

The deal, which also brings a fleet of specialized LNG carrier ships, will add roughly 30 percent to Shell’s world-leading LNG supplies. Greater volumes will mean that Shell will have more LNG available to trade, a route to higher profit, rather than to use simply for fulfilling contracts. Macquarie Securities estimates that Shell will now have 6.6 million tons of LNG to trade in its portfolio, or about 20 percent of its total volumes.

Shell last year reported $9.4 billion in net income from its LNG business, known as Integrated Gas.

Raphael Minder reported from Madrid.

Article source: http://www.nytimes.com/2013/02/28/business/global/natural-gas-deal-a-bonus-for-both-shell-and-repsol.html?partner=rss&emc=rss