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Shell Exits Permian In $9.5 Billion Deal

Anglo-Dutch oil supermajor Shell is set to leave the Permian with a divestment worth close to $10 billion.

The company said it will sell its assets in the shale play to ConocoPhillips for a total price of $9.5 billion.

"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, Upstream Director at Shell.

"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."

In fact, there is a big chance the decision to exit the Permian has a lot to do with a Dutch court ruling from earlier this year that ordered Shell to reduce its carbon footprint considerably.

"The court orders Royal Dutch Shell... to reduce its CO2 output and those of its suppliers and buyers by the end of 2030 by a net of 45 percent based on 2019 levels," said the court in May.

Divestments immediately emerged as the most realistic way for Shell to comply with the court order, although, as chief executive Ben van Beurden said at the time, just because Shell sells oil assets, it would not mean that global emissions would fall because someone else will be developing these assets. In the case of the Permian, this will be Conoco, a company with a solid presence in U.S. shale already.

According to Bloomberg, the deal will make ConocoPhillips one of the largest Permian players as its new Permian assets will give it an additional daily production in 2022 of about 200,000 barrels of oil equivalent.

The Anglo-Dutch major said it will use the proceeds from the deal to distribute some $7 billion among shareholders in additional cash return, "with the remainder used for further strengthening of the balance sheet." The all-cash deal is expected to close by the end of the year.

Shell saw its share price rise as a result of the news. At 9:49 AM ET, the price of one share Royal Dutch Shell (NYSE:RDS.A) was up by 4.68% at $41.34.

By Irina Slav for Oilprice.com

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  • Bill Simpson on September 21 2021 said:
    Great news. Nothing like a US company owning oil located in the US. Thank you, Shell & Dutch court.
  • Mamdouh Salameh on September 21 2021 said:
    If Shell’s decision to sell its Permian assets is part of a divestment drive, then it is absolutely wrong. Shell will be committing the same mistake that BP has committed, namely abandoning the rational policy that ‘Black backs Green’ for the ludicrous policy of ‘Green undermines Black’. In such a situation Shell may end up emaciated and ripe for a predator, probably an American one.

    If, on the other hand, the decision to exit the Permian has a lot to do with a Dutch court ruling from earlier this year that ordered Shell to reduce its carbon footprint considerably, then Shell should challenge the Dutch Court’s decision with all power at its disposal.

    The litigation game against the producers of fossil fuels is based upon a false premise, namely that fossil-fuel producers should be held responsible for the effects of increasing atmospheric concentrations of greenhouse gases (GHG).

    Producers produce fossil fuels because there is a global demand for them. So why have the courts failed to go after every industry that uses fossil fuels? Should the courts not sue consumers of fossil fuels for the purported harm that their consumption preferences engender? Still the courts are happy to blame fossil-fuel producers for all that damage. Assigning “blame” to the producers of fossil fuels rather than the users is an obvious gambit to make the litigation game manageable; they cannot sue everyone but they can still show hypocrisy.

    Moreover, divestment of Shell’s Permian assets would not mean that global emissions would fall because someone else will be developing these assets. In this case, it will be Conoco.

    The most logical and efficient way to combat climate change is to focus on reducing carbon emissions from fossil fuels and not their actual use.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Lee James on September 22 2021 said:
    A key question is, can we reduce the emissions from burning fossil fuel fast enough to make it possible that we will not have to limit the petroleum that we burn?

    So far, based on what I am seeing in the cost of carbon reduction technology and the cost of scaling the technology to adequately extract and sequester carbon, I think we'll need to adjust the rate of carbon burning downward.

    After the great ride that oil has given us, it is hard to believe all of the S-curves and bumpy roads that are around the bend.
  • Lee James on September 22 2021 said:
    To relate my earlier comment to Shell's exit from the Permian, reduced oil-producer competition for the Permian resource has the potential of increasing fuel costs for consumers. Shell may become more of a "big E" Energy company and produce slightly less burnable energy and more alternative energy.

    Somewhat higher fuel cost and lower alternative energy cost is actually what I think we need. The Dutch court order to reduce the burning valid so long as we maintain the right energies balance, in the energy transition.

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