Carlyle extends private equity oil rush with $587 million Shell deal

By Ron Bousso

LONDON (Reuters) - Carlyle Group (CG.O) has bought Royal Dutch Shell's (RDSa.L) onshore oil fields in Gabon for $587 million (470 million pounds), continuing the growing trend of private equity investors looking to squeeze extra profit from oil majors' unloved assets.

Private equity funds have increased their presence in oil exploration and production outside the United States since the 2014 collapse in oil prices, snapping up assets from oil companies seeking to reduce debt and narrow operations.

For Shell, which last year sold North Sea assets to private equity-backed Chrysaor for $3.8 billion, the deal marks a further step in a $30 billion disposal programme after last year's $54 billion acquisition of BG Group turned it into a major gas and deepwater oil producer.

Carlyle, meanwhile, has set up a team of oil experts to run its new business and plans to restructure Shell's Gabon operations to strip out excess costs and minimise red tape.

"Our edge is that we can focus," said Marcel van Poecke, head of Carlyle International Energy Partners (CIEP).

"All these acquisitions are small compared with the majors. So you create much smaller entities, but very focused entities which helps with capital allocation and costs."

Anish Kapadia, of investment bank Tudor, Pickering, Holt & Co, agrees that Carlyle is likely to extract more from the Gabon fields than Shell, for which they are just one asset in a very large portfolio.

"Private equity can increase margins by both cutting costs and increasing what you get out of assets," he said, citing the potential to increase production and reserves with more so-called infill wells around existing operations -- an exercise unlikely to appeal to an oil major with bigger fish to fry

Shell, which has sold $20 billion of assets since 2015, said the disposal programme will allow it to focus on its core business.

"The decision to divest was not taken lightly, but it is consistent with Shell's strategy to concentrate our upstream footprint where we can be most competitive," said Shell’s upstream director, Andy Brown.

ROOM TO GROW

With little track record in operations outside North America, Carlyle and other funds -- including Blackstone (BX.N) and CVC partners -- have hired management teams to run operations in countries that often lack the transparency and strong financial framework found in western economies.

Carlyle invested in Assala Energy, led by former Tullow (TLW.L) executive David Roux, to run the new operations. Also at Assala are Eric Faillenet and Paddy Spink, who both worked in Gabon for independent oil and gas producer Perenco.

Van Poecke said that Carlyle plans to increase production in Gabon and could later expand to other parts of sub-Saharan Africa.

"Shell has been in Gabon for a very long time and we've had experience with different transactions in Gabon. We think the investment climate is good," he said.

"We will allocate more capital for infill drilling in Gabon itself and there is room to grow."

The Gabon fields currently produce about 60,000 barrels of oil equivalent per day.

The company has already set up two other oil and gas vehicles for investments outside North America. In the North Sea, its Neptune business, headed by former Centrica (CNA.L) boss Sam Laidlaw and co-funded by CVC Partners, is expected to make an investment in the near future.

It has also invested $500 million in Mazarine Energy to make bolt-on acquisitions in southern Europe and North Africa.

The capital for the investment will come from CIEP, which earmarked $2.5 billion for investments in global oil and gas exploration and production, and the $698 million Carlyle Sub-Saharan Africa Fund (SSA).

For Shell, the transaction will result in an impairment charge of $53 million after tax in the first quarter of 2017, it said. About 430 local Shell employees will be taken on by Assala Energy.

Assala will assume a debt of $285 million under the deal, which is expected to close in the summer.

(Editing by David Goodman)