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In further move from fossil fuel, Shell sells key US assets to ConocoPhillips for $9.5bn

Shell’s proposed deal to exit from the top U.S. oil field comes as the industry faces pressure to lower emissions.

Royal Dutch Shell is making another aggressive push to move away from fossil fuel by agreeing to sell all of its massive oil assets in the Permian basin, the most active U.S. oil field, to ConocoPhillips for around $9.5 billion in cash.

The US deal, disclosed by both companies on Monday, comes as Shell is attempting to cut its carbon emissions and invest more in renewable energy and this sale is one of the largest recent transactions in the shale patch as large oil companies come under increasing pressure to diversify outside of fossil fuels. Shell is also in the process of divesting from all its onshore assets in Nigeria’s Niger Delta.

Shell said $7 billion of the proceeds will be returned to shareholders, while it will use the remainder to shore up its balance sheet. The European oil giant acquired the bulk of its Permian assets in 2012 from energy giant Chesapeake for about $1.9bn.

ConocoPhillips said the assets, entirely in Texas, included about 600 miles of oil, natural gas and water pipelines and other energy infrastructure but declined to comment further on the deal Monday.

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Shell found that divesting the asset was a more attractive option for its shareholders than acquiring additional assets to grow its footprint in the Permian oil field, which straddles Texas and New Mexico, said Wael Sawan, Shell’s upstream director, in an interview.

“We found the cost of acquisitions in the last few years was above what we felt was going to be value-accretive for our shareholders,” Sawan said.

Mr. Sawan said the $7 billion that Shell plans to return to shareholders will most likely occur in the form of share repurchases, though that will be determined by the company’s board when it closes the deal in the fourth quarter.

Shell has about 225,000 net acres in the Permian that produce about 175,000 barrels of oil equivalent per day. The Permian represented less than 1% of the company’s carbon emissions from operations, Sawan said.

Shell said most of its workers in Midland, Texas, the heart of the Permian, and many of its employees in Houston will join ConocoPhillips, which is based in Houston.

Roughly one-third of Shell’s staff and overall capital investment in coming years will remain in the U.S., Sawan said. Following the Permian sale, the focus of the company’s oil-production business will shift to the Gulf of Mexico, where Shell is one of the largest offshore oil producers.

Shell had approached a number of other companies about its Permian holdings, but ConocoPhillips’s offer “significantly accelerated our cash flows in the future and de-risked this asset,” Sawan added.

The price tag was in line with recent deals in the Permian Basin, at around $47,500 per barrel of oil equivalent, said Subash Chandra, an analyst at Northland Capital Markets.

Chandra said the deal also shows that ESG, or environmental, social and governance issues, are becoming a more important part of large deals in the oil patch. He noted that ConocoPhillips promised to increase its target for reducing emissions intensity by 2030 in conjunction with the deal.

“Shell doesn’t want to sell to someone who is going to make them look bad on their ESG metrics even after the sale,” Chandra said. “It used to be, ‘Just show me the money.’”

Oil production in the Permian has increased almost to pre-pandemic levels this year while other oil patches such as the Bakken Shale in North Dakota and the Eagle Ford in Texas have largely flatlined. The Permian has more prolific acreage than other fields and remains the oil industry’s center of gravity in the U.S.

Goldman Sachs Group Inc. was ConocoPhillips’s financial adviser and Baker Botts LLP. was its legal adviser. Morgan Stanley and Tudor, Pickering, Holt & Co. were Shell’s financial advisers and Norton Rose Fulbright was its legal adviser.

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