Royal Dutch Shell agrees to sell Permian Basin business to ConocoPhillips for US$9.5bn

Royal Dutch Shell (NYSE:RDS.A) PLC agreed to sell its business in the Permian Basin, the biggest oilfield in the US, to ConocoPhillips (NYSE:COP) for US$9.5bn (£6.9bn) in cash, as it continues to shift its focus away from fossil fuels and towards clean energy.

ConocoPhillips, a leading shales developer in the basin, will acquire about 225,000 net acres and producing properties located entirely in Texas, as well as over 600 miles of operated crude, gas and water pipelines and infrastructure.

The US company expects these assets to produce about 200,000 barrels of oil equivalent per day in 2022, up from Shell’s current daily production of about 175,000 barrels.

Shell has been providing energy to US customers for more than 100 years and said it plans to remain an energy leader in the country for decades to come. It said that a further update on its production outlook and portfolio will be provided with fourth-quarter earnings.

It has come under pressure to accelerate its move away from fossil fuels to help combat climate change.

In May, a district court in the Netherlands ordered the Dutch-UK group to cut its net carbon pollution by 45% by 2030 from 2019’s levels, prompting chief executive Ben van Beurden to say that Shell would hasten plans to reduce emissions, Reuters reported.

Shell said it will use the cash proceeds from the sale to fund US$7bn in additional shareholder dividends and the remainder to strengthen its balance sheet. 

The transaction is expected to close in the fourth quarter of 2021.

The Permian business recorded a pretax operating loss of US$491mln in 2020, Shell said, adding that the disposal is expected to result in an after-tax gain of US$2.4 to US$2.6 billion, subject to adjustments.

“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” said Wael Sawan, Shell’s upstream director.

In its statement, ConocoPhillips also said it will lift its target for cutting greenhouse gas emissions. An earlier 2030 reduction target of 35-45% on a gross operated basis will be increased to 40-50%, versus a 2016 baseline, it said.

Story by ProactiveInvestors