Shell Agrees $ 9.5 Billion Sale of Permian Basin Assets to ConocoPhillips

Oil and gas industry updates

Sign up for myFT Daily Digest to be the first to know about oil and gas industry news.

Royal Dutch Shell has agreed to sell its operations in the Permian Basin, the largest oil field in the United States, to rival ConocoPhillips for $ 9.5 billion in cash.

The Anglo-Dutch oil supermajor had named the Permian as one of its major oil and gas producing regions as recently as this year. But it is under intense pressure to accelerate the exit from fossil fuels.

In May, a district court in the Netherlands ordered the company to reduce its net carbon pollution by 45% from 2019 levels by 2030, prompting chief executive Ben van Beurden to say Shell would speed up its emission reduction plans.

Shell said Monday the deal would include about 225,000 net acres of land producing about 175,000 barrels of oil equivalent per day. Houston-based ConocoPhillips said it plans to produce about 200,000 bpd from the properties by next year.

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

Shell said it would use $ 7 billion in cash from the transaction to fund “additional distributions to shareholders after closing” and the rest to pay down debt. RBC Capital Markets analysts expected the sale to fund additional share buybacks. Shell shares rose more than 1.5% outside of trading hours on Monday.

The deal highlights the growing gap between Europe-based oil companies such as Shell, BP and TotalEnergies, which are trying to switch to renewables and low-carbon electricity, and their US peers who continue to bet on the future of oil and gas.

ConocoPhillips intends to use the sale to deepen its penetration into the Permian Basin, whose hydrocarbon-rich shale rocks lie between west Texas and southeast New Mexico. In October 2020, the company spent $ 13.3 billion, including debt, to buy competing shale producer Concho Resources in the same region.

Ryan Lance, managing director of ConocoPhillips, called it a “unique opportunity” to add to the company’s business in the Permian, where the company lagged behind its shale rivals until the purchase of Concho.

America’s shale oil and gas industry, plagued by heavy financial losses for years, is going through a period of rapid consolidation that has fueled tens of billions of dollars in transactions over the past year and a half.

Shell said oil and gas production would continue to play a “critical role” in its strategy to deliver “the energy the world needs today while funding shareholder distributions as well as the energy transition.”

The sale of Shell had been expected for several months, with several large shale producers considering buying the assets. Some bankers have said the company may struggle to find a buyer because Shell does not operate around half of the wells it owns, which means other companies – primarily Occidental Petroleum – are making operational decisions.