UPDATE 2-LNG deal eases Repsol debt, boosts Shell position

Tue Feb 26, 2013 3:34pm EST

* Shell to pay $4.4 billion in cash, assume $2.3 bln in leases and debt

* Repsol to cut debt by more than half to 2.2 billion euros

* Extends Shell's leading LNG position among oil majors

* Deal excludes Canadian terminal Canaport

By Tracy Rucinski and Andrew Callus

MADRID/LONDON, Feb 26 (Reuters) - Repsol has sold a set of liquefied natural gas (LNG) assets to Royal Dutch/Shell for $4.4 billion cash, more than halving the Spanish oil company's heavy debt and extending the Anglo-Dutch group's dominant position in LNG.

The sale, announced by the two companies on Tuesday, includes LNG assets in Trinidad and Tobago, Peru and the Bay of Biscay but not Canadian import terminal Canaport, which failed to attract interest because booming North American gas production has eroded its value.

Shell will also take on $2.3 billion of financial leases and debt as part of the deal Which they expect to complete before the end of the year.

Repsol said it would book a capital gain of $2.7 billion from the deal and make a $1.3 billion provision against the value of Canaport, leaving a net gain of $1.4 billion and easing its financial situation.

The Spanish company has been under pressure to reduce debt and hold onto an investment-grade credit rating since the Argentine government seized control of its majority stake in energy company YPF last April.

It put the LNG assets up for sale last summer as part of a wider divestment programme aimed at cutting debt, which stood at 5 billion euros ($6.5 billion) at the end of September, excluding debt related to its 30 percent stake in Gas Natural Fenosa.

Following the sale, net debt will fall to 2.2 billion euros, Repsol said.

The LNG sale had drawn interest from a range of bidders including China's Sinopec, Russia's Gazprom, GAIL Ltd of India and GDF Suez of France.

SHELL LNG LEADER

Shell is already the top LNG producer among the world's biggest oil companies.

It has 22 million tonnes per year (mtpa) of LNG on stream - more than a tenth of global demand - and is building 7 mtpa of new LNG capacity in Australia that will increase its production by 30 percent over the next few years.

This deal adds a further 4 mtpa of owned capacity, taking its production to about 33 mtpa by 2017. Its closest rival among the oil majors is Exxon Mobil, which is expected to have about 20 mtpa of production in 2017.

The deal also widens its geographic reach in LNG into the West Atlantic from Atlantic LNG in Trinidad & Tobago where it will become a partner with BG Group, and into the East Pacific from Peru LNG.

These additions will complement Shell's existing LNG capacity in Africa, Asia, Australia, the Middle East and Russia, the company said.

Under the deal, Shell has committed to continue supplying Canaport with just 0.1 million tonnes a year of LNG over a period of 10 years, enough to keep the terminal ticking over, but little more.

Repsol, which is due to report 2012 results on Feb. 28, has sold assets for more than 5 billion euros in the past year, surpassing the target outlined in its strategic plan.

Fitch revised Repsol's credit rating outlook to stable from negative in late January on expectations that it would complete its asset sales plan. S&P and Moody's are expected to make a statement in the coming days on their outlook.

S&P rates Repsol's long-term debt at BBB- with a stable outlook, while Moody's has a Baa3 rating with a negative outlook.