Shell and ConocoPhillips in $9.5B Permian Deal
Royal Dutch Shell plc (NYSE: RDS.A) has announced that its subsidiary, Shell Enterprises LLC, has reached an agreement for the sale of its Permian business to ConocoPhillips (NYSE: COP) for $9.5 billion in cash.
The deal will transfer all of Shell’s interest in the Permian to ConocoPhillips, subject to regulatory approvals, Shell revealed. Shell’s Permian business includes ownership in approximately 225,000 net acres with a current production of around 175,000 barrels equivalent per day, Shell highlighted. The majority of the company’s Midland-based Permian employees, and many Houston-based employees, will be offered employment by ConocoPhillips, according to Shell.
Shell noted that proceeds from the transaction will be used to fund $7 billion in additional shareholder distributions, with the remainder used for further strengthening of the balance sheet. The company said the distributions will be in addition to its shareholder distributions in the range of 20-30 percent of cash flow from operations. The effective date of the transaction is July 1, with closing expected in the fourth quarter.
“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” Wael Sawan, Shell’s upstream director, said in a company statement.
“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,” Sawan added in the statement.
Commenting on the deal, ConocoPhillips’ chairman and chief executive officer Ryan Lance 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,” he added.
“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 percent of cash from operations,” Lance went on to say.
ConocoPhillips highlighted that the transaction does not impact the company’s previously announced intention to reduce gross debt over the next several years. The business also revealed that, in conjunction with this transaction, it plans to increase its targeted level of dispositions from the previously announced $2-3 billion to $4-5 billion by 2023. The additional $2 billion of planned dispositions are expected to be sourced primarily from the Permian Basin as part of the company’s ongoing portfolio high-grading efforts, ConocoPhillips noted.
In May this year, Shell revealed that it had reached an agreement for the sale of its interest in the Deer Park Refining Limited Partnership for a consideration of $596 million. During the same month, Shell signed a deal with Malampaya Energy XP Pte Ltd for the sale of its 100 percent shareholding in Shell Philippines Exploration B.V. for a base consideration of $380 million and in February Shell reached an agreement with Crescent Point Energy Corp. to sell its Duvernay shale light oil position in Alberta for a total consideration of $707 million.
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