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Mon 18 Jan 2016 03:59 PM

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Oil giant Shell exits Abu Dhabi gas field project

Royal Dutch Shell ditches the multi-billion dollar plan to jointly develop the Bab sour gas field, cites downturn in oil market

Oil giant Shell exits Abu Dhabi gas field project

Royal Dutch Shell said on Monday it had decided to exit a multi-billion-dollar plan to develop jointly the Bab sour gas field in Abu Dhabi, the latest major project to fall victim to the worst oil-market downturn in decades.

The Anglo-Dutch company said that "following a careful and thorough evaluation of technical challenges and costs" it would stop further joint work on the project with Abu Dhabi National Oil Co (ADNOC).

Shell won in 2013 a tender valued at the time at $10 billion for a 40 percent stake in a 30-year venture to develop the complex sour gas field, involving the treatment of potentially deadly gasses.

The Bab joint venture envisaged building a sour gas processing plant that would yield 1 billion cubic feet per day, aimed at domestic consumption.

The move was also seen at the time as a stepping stone for Shell to renew a coveted concession to develop the United Arab Emirates' largest onshore oilfield.

"The evaluation concluded that for Shell, the development of the project does not fit with the company's strategy, particularly in the economic climate prevailing in the energy industry," Shell said in a statement on Monday.

The decision is not expected to result in a significant writedown for Shell, which reports interim fourth-quarter and full-year 2015 results on Wednesday ahead of a key shareholder vote on its proposed acquisition of BG Group.

Shell shares were down 0.5 percent at 1445 GMT, compared with a 0.2 percent gain for the sector index.

The United Arab Emirates' energy minister said the UAE was not worried about Shell's pullout.

"The reason most probably will be (a) commercial reason because now the cost of gas and the price of gas and LNG has dropped more than 50 percent," Suhail bin Mohammed al-Mazroui said on the sidelines of a conference in Abu Dhabi.

"We are not worried about supply of gas. We are planning well. If the company is pulling out, I'm not worried," Mazroui said.

Analysts at Bernstein welcomed Shell's decision to exit "yet another high-cost (and) low-return project" even at the cost of risking long-term relationships with countries.

"Such actions are increasingly placing Shell further down the cost curve while making it even stronger at the cycle bottom," they wrote. Bernstein rates Shell as "outperform".

Shell pulled out of several major projects last year as a result of the steep decline in oil prices since June 2014, including its 80,000-barrels-per-day Carmon Creek thermal oil sands project and the 200,000 bpd Pierre River oil sands mining project in Canada.

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