Shell to Acquire Rival ConocoPhillips’s Permian Basin Operations in a USD 9.5 Billion Deal

Anurag Sharma
Anurag Sharma

Updated · Oct 6, 2021

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Royal Dutch Shell has decided to pay rival ConocoPhillips USD 9.5 billion to acquire its Permian Basin operations, the country’s largest oilfield. Recently, the Anglo-Dutch oil giant named the Permian as one of its key oil & gas-producing zones. However, there’s a lot of pressure on the American government to move faster of eliminating the use of fossil fuels. In May, a Dutch district court asked Shell to lower its net greenhouse emissions by 45% from its reported 2019 levels by the year 2030, compelling the company’s CEO Ben Van Beurden to announce that Shell will speed up its emissions-reduction plans. Shell announced the transaction on Monday, stating that it will contain around 225,000 net acres of land producing the equivalent of 175,000 barrels of oil per day. An estimated 200,000 barrels per day will be produced from the assets by Houston-based ConocoPhillips by the end of next year. Wael Sawan, Shell’s upstream director, said the deal with ConocoPhillips “came as a very attractive value proposition” after analyzing different Permian asset strategies and portfolio possibilities.

Shell stated that it will invest USD 7 billion of the transaction’s sum to cover “additional shareholder payouts after completion”, and the rest to pay off debt. RBC Capital Markets’ analysts predicted that the sale would be used to support further share buybacks. In Monday’s after-hours trade, Shell’s shares surged by more than 1%. There is an increasing chasm between European oil corporations such as Shell, BP, and TotalEnergies, all of which are working towards shifting their focus to renewable energy and low-carbon power, and their US counterparts, who remain bullish on the prospects of oil & gas. ConocoPhillips plans to utilize the proceeds from this sale to increase its drilling efforts in the Permian Basin’s hydrocarbon-rich shale rocks.

A competing shale producer in the same region, Concho Resources, was purchased by Shell in October 2020 for USD 13.3 billion, including their outstanding debt, according to the company’s financials. As CEO Ryan Lance put it, the Concho acquisition gave ConocoPhillips’ Permian division a “unique chance” to catch up to competitors in the shale space. Investors are cashing in on Big Oil’s drive to net-zero with a USD 140 billion asset sale. In the last 18 months, the US shale oil & gas sector has indexed tens of billions of dollars in mergers & acquisitions as a result of the significant financial losses it has endured over the years. Shell stated that oil & gas production would continue playing a “vital role” in its mission of catering to the demands of the energy market, while also funding investor payouts as well as improving decarbonization levels. The sale of Shell’s assets had been widely anticipated for several months, with numerous major shale producers considering buying them. Certain bankers predicted that Shell would have difficulty in finding buyers since it does not run half of the wells it controls, which means that other businesses, primarily Occidental Petroleum, are more involved in its operational choices.

Anurag Sharma

Anurag Sharma

He has been helping in business of varied scales, with key strategic decisions. He is a specialist in healthcare, medical devices, and life-science, and has accurately predicted the trends in the market. Anurag is a fervent traveller, and is passionate in exploring untouched places and locations. In his free time, he loves to introspect and plan ahead.