Royal Dutch Shell to sell Permian Basin assets to ConocoPhillips for $9.5bn

Shell Enterprises, a subsidiary of Royal Dutch Shell, has signed an all-cash deal worth $9.5 billion to sell its assets in the US-based Permian Basin to ConocoPhillips.

The assets are located in Texas and are spread over a total of 2,25,000 net acres in the Delaware Basin.

Presently, the Permian Basin assets are producing close to 1,75,000 barrels equivalent per day (MBOED). Their 2022 production is forecast to be nearly 200MBOED. Almost half of the production is operated by Shell.

In addition to the upstream assets, the deal involves acquiring over 600 miles of operated crude oil, gas, and water pipelines, and infrastructure.

Wael Sawan — Upstream Director of Royal Dutch Shell said: “After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition.

“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 will use the cash proceeds from the sale of the Permian Basin assets for funding $7 billion worth of additional shareholder distributions. The remainder of the amount will be utilized by the oil and gas giant for strengthening its balance sheet.

ConocoPhillips said that the Permian Basin assets of Shell are complementary and highly accretive and that their combination with its multi-basin Lower 48 portfolio will help it deliver significant incremental upside.

Ryan Lance — ConocoPhillips chairman and CEO said: “We were presented with a unique opportunity to add premium assets at a value that meets our strict cost of supply framework and brings financial and operational metrics that are highly accretive to our multi-year plan.

“Our financial strength allowed us to structure a competitive offer for this transaction and we are very excited to enhance our position in one of the best basins in the world with the addition of Shell’s high-quality assets and talented workforce.

“The transaction will be funded from available cash while still retaining a significant level of cash on the balance sheet for general purposes. Our underlying business drivers will be stronger and the expanded cash flows derived from this transaction mean shareholders will benefit from higher returns of capital consistent with our commitment to return of capital of at least 30% of cash from operations.”

Subject to regulatory approvals and other customary closing conditions, the deal is likely to be wrapped up in Q4 2021.