HOUSTON — Royal Dutch Shell on Monday sold its oil and gas production in the Perm basin, the largest US oil field, to ConocoPhillips for $9.5 billion in cash.
The deal marks a turning point for Shell, which has since gone to great lengths to develop the 225,000 hectare field buying Chesapeake Energy nine years ago, and expanded production to about 200,000 barrels per day.
The sale is the latest sign that Shell, like other European oil companies, is under pressure to sell off oil and gas production and switch to producing cleaner energy in response to growing concerns about climate change among investors and the general public .
Shell pulls out of the Permian as US shale oil production recovers. The field yielded 4.7 million barrels per day in August — more than 40 percent of total U.S. oil production and an increase of nearly 400,000 barrels per day since January. Rising oil prices have tempted crews to return to the fields, where they use hydraulic fracturing — commonly known as fracking — to blow open shale rocks and squeeze oil out of the ground.
A wave of acquisitions in the Permian began last year with the onset of the coronavirus pandemic as companies sought to cut costs. The scale of the Shell deal is comparable to Conoco’s acquisition of Concho Resources for $9.7 billion in October, a deal that made Conoco a major player in the Permian, which spans Texas and New Mexico. In April, Pioneer Natural Resources bought DoublePoint Energy for $6.4 billion.
With the acquisition of Shell’s acreage, Conoco consolidates its position as a top producer in Perm, along with Pioneer, Occidental Petroleum, Exxon Mobil and Chevron.
Shell’s sale of its West Texas Perm interests, which last year accounted for an estimated 6 percent of the company’s global oil and gas production, had been expected for months. Shell recently sold its interest in offshore oil and gas fields in Malaysia and the Philippines. The US operations include offshore production in the Gulf of Mexico, along with refineries.
Shell has been talking about cutting emissions since 2017 and has accelerated the move to cleaner fuels over the past two years, although not enough to please many environmentalists. In addition to its goal of achieving net-zero emissions by 2050, it has set a target of reducing oil production by 2 percent per year by 2030 through divestments and lower investment in exploration and production.
“We are very excited to strengthen our position in one of the best basins in the world,” said Ryan M. Lance, CEO of Conoco. He praised the deal as “a unique opportunity to add premium assets.”
Shell said it viewed the deal as “a compelling value proposition”.
“This decision once again reflects our focus on value over volumes,” said Wael Sawan, Shell’s upstream director. said when announcing the deal. He said Shell had looked at multiple strategies and options for the Permian acreage.
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Shell said the cash proceeds from the transaction would fund $7 billion in shareholder distributions as well as “energy transition” efforts.
Shell plans to increase its investments in renewable energy and low-carbon technologies to around 25 percent of its budget by 2025.
At least some of the money from the asset sale will go to Shell’s energy companies, including plug-in points for electric vehicles, battery companies and utilities. Shell announced plans this week to build a biofuel factory in the Netherlands to use waste from used cooking fat and animal fat to make cleaner diesel and jet fuel.
At least part of the impetus for Shell’s divestment of hydrocarbon assets came from a decision by a Dutch court in May that ordered the company to cut greenhouse gas emissions by 45 percent by 2030 compared to 2019 levels, before the end of the year. pandemic reduced demand for oil and gas. Shell is appealing the ruling.
When Shell or other oil companies sell a field or petrochemical plant, the transaction does not automatically mean a reduction in global emissions, as other companies routinely pick up production.
In a recent article On LinkedIn, Shell’s CEO, Ben van Beurden, wrote that if Shell stopped selling transportation fuels “it wouldn’t help the world” because “people would refuel their cars and vans at other gas stations.”
Shell, like the entire oil and gas industry, has been going through a rough time of late. The pandemic forced the company to cut its dividend last year. But with oil and natural gas prices recovering, the company has returned to robust profitability and reported profits of $5.5 billion in the second quarter, up from $638 million a year earlier.
Stanley Reed reporting contributed.