Shell may put up for sale all of its acreage in the Permian in the latest step of a low-carbon push that was most recently spurred by a court ruling against the supermajor.
A Dutch court ordered Shell to reduce its carbon emissions by 45 percent from 2019 levels by 2030 and start complying with the ruling "immediately," as the judge held the company liable for the emissions caused by the use of its products and said its climate policy was not specific enough.
Shell has 260,000 acres in the Permian and, according to unnamed sources quoted by Reuters, may sell all of them. The assets accounted for some 6 percent of Shell's total oil and gas production in 2020 and, according to the sources, could fetch up to $10 billion.
Shell, like all other European oil majors, has pledged to reduce emissions and become a net-zero energy business by 2050 or sooner. Earlier this year, Shell reiterated that its oil production peaked in 2019 and is set for a continual decline over the next three decades.
The court ruling, however, has added a new sense of urgency in that undertaking along with a new challenge, because the ruling does not only target Shell's own emissions. The ruling of Judge Larisa Alwin also included emissions generated by Shell's suppliers and the buyers of its products.
Following the ruling, Shell said it would pick up the pace with its energy transition since the ruling came into effect immediately, CEO Ben van Beurden said in a LinkedIn post following the ruling. Still, the company will appeal the ruling as it would necessitate a major and fast reduction in its oil and gas production.
The Permian was among Shell's nine core basins in the company's energy transition plans, Reuters notes in its report. However, profitability has been hard to come by in the shale patch, which would motivate a decision to sell.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
Shell’s oil production peaked in 2019 and like other oil supermajors is facing difficulties in replacing its reserves because of resurgent reserve nationalism.
The power structure of global oil markets is already undergoing a major transformation exemplified by the rising power of the National Oil Companies (NOCs) and the declining influence and power of International Oil Companies (IOCs).
Whilst top IOCs such as Total, BP, Shell, Chevron, ENI, ConocoPhillips, ExxonMobil, Equinore and Repsol have reserve to production (R/P) ratios ranging from 8.0-10.5 years, the NOCs of countries like Saudi Arabia, Iraq, UAE, Venezuela and Kuwait to name but a few have access to proven reserves whose R/P ratios range from 66-91 years at the 2019 production levels. For instance, Shell expects to have produced 75% of its current proven oil and gas reserves by 2030, and only around 3% after 2040.
The oil reserves of IOCs are declining fast and they can’t replace what they are producing. Any new crude oil discoveries are being snapped up by the NOCs. Overall average IOCs’ reserves in place have fallen by 25% since 2015 with less than 10 years of total annual production available. That is why NOCs will prevail over IOCs.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London