Shell has reached a deal to sell its Permian shale business to ConocoPhillips for $9.5 billion, with $7bn of that going to shareholders.
Shell Enterprises signed the agreement, which covers 225,000 net acres and around 175,000 barrels of oil equivalent per day. Conoco said it expected production to be around 200,000 boepd in 2022, of which half will be operated.
The effective date of the deal is July 1, 2021. The company said the sale should close in the fourth quarter of this year.
With $7bn going to additional shareholder payouts, the remainder will go to Shell’s balance sheet. The company said its upstream business was working to fund shareholder dividends and the energy transition.
“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” said Shell upstream director Wael Sawan.
“This decision once again reflects our focus on value over volumes as well as disciplined stewardship of capital. This transaction, made possible by the Permian team’s outstanding operational performance, provides excellent value to our shareholders through accelerating cash delivery and additional distributions.”
Conoco chairman and CEO Ryan Lance said the opportunity to acquire Shell’s Permian assets was unique. It provided scope to “add premium assets at a value that meets our strict cost of supply framework and brings financial and operational metrics that are highly accretive to our multi-year plan”.
Balancing the numbers
Shell’s Permian business reported a pre-tax operating loss of $491 million for 2020. Most of its Permian employees, based in Midland, and many Houston employees will have the option of working for Conoco, it said.
Conoco will fund the deal from available cash, Lance said.
The buyer also announced a number of steps to reassure its own shareholders. Conoco is bumping up its dividends by around 7%, payable on December 1.
It is also increasing its planned asset sales. It had previously aimed for $2-3bn by 2023 but will now aim for $4-5bn. These additional sales will come primarily in the Permian, as part of its efforts to improve the quality of its portfolio.
Conoco also said it was improving its scope 1 and 2 emissions targets. It had targeted a reduction of 35-45% by 2030 but will now aim for 40-50%. This is from a 2016 baseline.
Goldman Sachs advised Conoco, while Baker Botts provided legal advice. Morgan Stanley and Tudor, Pickering, Holt served Shell with financial advice, while Norton Rose Fulbright handled the legal aspects.