(Bloomberg) – ConocoPhillips has agreed to acquire the Permian Basin assets of Royal Dutch Shell Plc for $ 9.5 billion in cash, accelerating the consolidation of America’s largest oil field.
The deal will give ConocoPhillips additional daily production in 2022 of around 200,000 barrels of oil equivalent, he said in a statement Monday. This will make the Houston-based company one of the largest producers in the Permian, rivaling Pioneer Natural Resources Co. and Chevron Corp. in terms of crude production.
The Permian, which straddles western Texas and New Mexico, is the busiest shale area in the world and accounts for almost half of the current activity in America’s oil fields. ConocoPhillips already strengthened its presence there earlier this year by acquiring independent producer Concho Resources Inc. for around $ 13 billion.
ConocoPhillips said it would fund the latest transaction with cash. Based on current forward prices and estimated production, next year’s free cash flow from the acquired businesses is estimated at $ 1.9 billion. The company also announced a 7% increase in its dividend to 46 cents per share.
In Shell’s hands, Permian operations were “on a small scale,” upstream manager Wael Sawan said in an interview. “To really unlock the full value of an asset like this, you need the ladder,” he said.
Sawan added that the deal gives Shell the equivalent of more than a decade of cash flow from Permian assets. The company said in a statement that the proceeds would be used to fund an additional $ 7 billion in distributions to shareholders after the transaction closes, which is expected in the fourth quarter. He also revealed that the Permian business suffered a pre-tax operating loss of $ 491 million in 2020, a year in which oil prices plummeted due to the pandemic.
Shell’s withdrawal from the Permian comes as the Anglo-Dutch giant reconfigures its strategy in favor of less carbon-intensive fuels while aiming for net zero emissions. Shell was ordered by a Dutch court in May to cut emissions harder and faster than expected after losing a lawsuit against a Friends of the Earth branch.
The deal is the latest in a series of shale-related deals in 2021. Fueled by higher cash flow from recovering oil prices, independent US exploration and production companies have sought mergers to reduce costs and scale up, with encouragement from investors who have suffered disappointing industry returns for several years.
The US shale has also limited production over the past year despite the price rebound, to avoid repeating the production boom in the previous cycle that led to glut and helped erode profitability. .
Shale agreement flow
ConocoPhillips was little changed at $ 57.15 at 5:43 p.m. in after-hours New York trading. Shell’s American Depositary Receipts climbed 1.3% to $ 40.
Morgan Stanley and Tudor, Pickering, Holt & Co. are Shell’s financial advisers on the transaction and Norton Rose Fulbright is its legal advisor. Goldman Sachs Group Inc. is financial advisor to ConocoPhillips and Baker Botts LLP is its legal advisor.