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Shell Goes Full BP – Part Deux – Watts Up With That?

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Shell Goes Full BP – Part Deux – Watts Up With That?


Guest “divestment-schmivestment!” by David Middleton

Almost exactly one year ago, I wrote “Shell Goes Full BP,” about their decision to divest oil & gas assets to appease the Euro-Climatariat. Somehow, by divesting their oil & gas assets Shell would help save the climate…

Shell signs agreement to sell Permian interest for $9.5 billion to ConocoPhillips
Sep 20, 2021

Shell Enterprises LLC, a subsidiary of Royal Dutch Shell plc, has reached an agreement for the sale of its Permian business to ConocoPhillips, a leading shales developer in the basin, for $9.5 billion in cash. The transaction will transfer all of Shell’s interest in the Permian to ConocoPhillips, subject to regulatory approvals.

“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. “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.”

Shell’s Upstream business plays a critical role in the Powering Progress strategy through a more focused, competitive and resilient portfolio that provides the energy the world needs today whilst funding shareholder distributions as well as the energy transition.

The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30% of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021.

Shell has been providing energy to U.S. customers for more than 100 years and plans to remain an energy leader in the country for decades to come. 

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Shell

Shell just sold 225,000 net acres, with net production of 175,000 BOE/d for $9.5 billion. Shell will use $7 billion to invest in green schist fund “additional shareholder distributions.”

The thing is that you can’t have a divestment without a willing and able investor.

ConocoPhillips will leave the oil & gas in the ground ramp up the “free cash flow machine”…

‘Free cash flow machine’

At the corporate level, unconventional shale oil and gas production generates steady cash flow that ConocoPhillips can use to fund legacy conventional assets with low capital needs in places like Alaska, Norway and Qatar, executives said. These assets in turn yield long-term, steady output that offsets the sharp production decline rates in the unconventional business.

“We run that as a free cash flow machine,” Lance said. “So we’re running that in a different fashion for modest growth — focus on returns of capital on capital — and this transaction makes that even better for the company going forward.”

The deal also would improve the greenhouse gas emissions intensity of ConocoPhillips’ production mix, Lance said. The company revised its emissions intensity reduction target from 35-45% for gross operated production to 40-50% for both net equity and gross operated output against a 2016 baseline.

The market reacted positively to the announcement, with shares of ConocoPhillips jumping nearly 5% in afternoon trading and several analysts raising price targets on the stock.

In a Sept. 21 research note, Mizuho Securities USA LLC said the deal was positive for ConocoPhillips’ ability to fund shareholder payouts and extended ConocoPhillips’ Delaware basin production inventory to about 35-plus years.

MKM Partners LLC analyst John Gerdes said the acquisition created “upper echelon Permian Basin asset scale” by increasing ConocoPhillips’ Delaware basin leasehold by about 50% to roughly 665,000 net acres.

[…]

S&P Global Market Intelligence



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