One of the world’s largest energy producers sold its Permian Basin assets to a Texas-based operator for $9.5 billion.
Royal Dutch Shell announced the deal Sept. 20 to sell its assets in the Delaware sub-basin on the western side of the Permian which spans from southeast New Mexico to West Texas to ConocoPhillips.
The deal also included $7 billion to be distributed to shareholders upon the sale’s closure, expected by the end of 2021.
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Wael Sawan, Shell upstream director said the move was intended to maximize cash distribution for investors rather than increasing production.
He said the sale was part of the company’s strategy to increase returns on investment by driving up the value of its properties in the basin.
In total, Shell’s Permian assets sold to ConocoPhillips make up about 225,000 acres, along with about 600 miles of pipelines.
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The assets’ production capacity was reported at about 175,000 barrels of oil equivalent per day (boed) upon the sale’s announcement and was expected to grow to about 200,000 boed in 2022.
When the deal is complete, Shell anticipated its employees in both the Midland sub-basin of the Permian and in the refinery and export markets around Houston would be hired on by ConocoPhillips
“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” Sawan said. “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.”
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Conoco announced that in addition to the sale, it planned to reduce greenhouse gas emissions by 40 to 50 percent by 2030 from 2016 levels, an increase from the prior goal of a 34 to 45 percent curb in emissions during the same time frame.
ConocoPhillips Chief Executive Officer Ryan Lance said the acquisition would strengthen the company’s cashflow and grow its footprint in the busy Permian Basin as fossil fuel markets improved in the wake of the COVID-19 health crisis.
“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,” he said.
“The assets we’re adding are consistent with our low cost of supply strategy, which is designed to position our portfolio as the most likely to be developed as the energy transition progresses and the need for oil and gas is reduced over time.”
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As of Monday, domestic oil was trading at about $75 as of Monday, per data from the Chicago Mercantile Exchange.
The recent prices were some of the highest of 2021 which started at $48 per barrel after improving from an historic drop in March 2020 to less than $0 per barrel for the first time in history.
The price per barrel continued to fluctuate upward all year, first peaking a the $75 per barrel mark in July, sliding down to a valley of $62 per barrel Aug. 20 before climbing back to the upper $60s and low $70s throughout September.
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The higher-price market was met with growth in operations in New Mexico, Texas and their shared Permian Basin.
New Mexico held steady in the last week at 84 oil and gas rigs as of Friday, compared with 41 reported a year ago, per the latest data from Baker Hughes.
Texas had 242 rigs, Baker Hughes reported, adding three in the last week.
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As of Friday, the Permian Basin in total had 260 oil and gas rigs operating in the state, up 135 from a total of 125 reported by Baker Hughes on the same date last year.
Despite the growth, analysts warned the fossil fuel markets could be volatile in the coming months after Hurricane Ida disrupted production and refinery activities in the Gulf Coast region in southeast Texas.
A report from energy industry analytics firm Rystad energy said the storm could curtail up to 1.8 million barrels per day (bpd) of supply in the region which has a daily production capacity of 1.9 million bpd.
The Category 4 hurricane made landfall in Louisiana from the Atlantic Ocean at the end of August, destroying property and leading the multiple deaths.
“We see a risk that the loss of US refinery demand will be greater and more prolonged than the loss of crude supply, which, depending on the extent of refinery shut-ins and power outages, could further weaken the flat price,” said Bjornar Tonhaugen, head of oil markets at Rystad.
Adrian Hedden can be reached at 575-618-7631, [email protected] or @AdrianHedden on Twitter.