Royal Dutch Shell announced on Monday that it would sell its Permian Basin assets to ConocoPhillips for $9.5 billion in cash, exiting the country’s largest oilfield to focus on clean energy.
ConocoPhillips has made its second large acquisition in the heart of the US shale industry this year, as American and European producers debate whether to focus on hydrocarbons in the future.
Shell, like the rest of the world’s top oil firms, is under pressure from investors to cut back on fossil-fuel investments in order to reduce global carbon emissions and combat climate change.
Exxon Mobil Corp and Chevron Corp are doubling down on hydrocarbons, while European companies like Shell and BP PLC have set plans to gradually move away from oil production while investing in non-fossil energy sources like solar and wind power.
ConocoPhillips has sided with the latter as a result of the agreement, but it has also indicated that it will tighten its greenhouse gas emission objectives in response to the increased focus on climate issues.
According to a statement released by ConocoPhillips, the company is acquiring around 225,000 net acres as well as over 600 miles of supporting infrastructure. This adds to its current Permian portfolio of 750,000 net acres.
Mergers and acquisitions have been used by US shale producers to increase their size in order to compete against the largest operators and lower production costs through economies of scale.
ConocoPhillips would raise its own divestiture plans to between $4 billion and $5 billion by 2023, up from between $2 billion and $3 billion now, to help pay for the purchase.
VALUE proposition
Shell’s oil and gas production in the United States will be nearly exclusively concentrated in the offshore Gulf of Mexico, where it is the largest single producer. Last year, it sold its Appalachian gas assets.
The sale was revealed on the same day that Shell announced that Hurricane Ida has caused damage to offshore transfer infrastructure, causing production to be halted in the area until early next year.
“We’ve got a once-in-a-20-30-year storm that has had an impact,” Wael Sawan, the company’s director of upstream, told reporters.
Sawan stated that the company would continue to invest in top oil and gas assets around the world and that while the company had considered options to keep and expand its Permian acreage in recent years, it was determined that the position did not have sufficient scale for Shell to continue to operate it.
“This deal presented itself to us as a strong value proposition,” Sawan explained.
As Shell focuses on its Gulf position as well as petrochemicals and renewables, the United States will continue to contribute around one-third of its global spending.
Shell plans to spend $7 billion in revenues to shareholders as dividends, on top of current promises, with the remainder going toward debt repayment, according to the company. Conoco also said that from December 1, it would increase quarterly cash payouts to shareholders by 7%.
Shell’s properties in the Permian, a shale basin that stretches across Texas and New Mexico and accounts for around 40% of US oil production, were originally reported in June.
Shell was advised by Morgan Stanley and Tudor, Pickering, Holt & Co, while ConocoPhillips was advised by Goldman Sachs. Norton Rose Fulbright and Baker Botts provided legal counsel to the seller and buyer, respectively.
