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ConocoPhillips to buy Shell Permian assets for $9.5 billion

Written by: Leonard Parker | Houston Business News | 20th September

(Bloomberg) -- ConocoPhillips agreed to acquire Royal Dutch Shell Plc’s Permian Basin assets for $9.5 billion in cash, accelerating the consolidation of the largest U.S. oil patch.

The deal, announced by Shell in a statement Monday, will give ConocoPhillips additional daily production of 175,000 barrels of oil equivalent. That will make ConocoPhillips one of the Permian’s biggest producers, rivaling Pioneer Natural Resources Co. and Chevron Corp. in terms of crude output.

The Permian, which straddles West Texas and New Mexico, is the world’s busiest shale patch and accounts for nearly half the current activity in U.S. oil fields. Houston-based ConocoPhillips already boosted its footprint there earlier this year when it took over independent producer Concho Resources Inc. for about $13 billion. 

Shell’s retreat from the Permian comes as the Anglo-Dutch giant reconfigures its strategy in favor of less carbon-intensive fuels while targeting net-zero emissions. Shell was ordered by a Dutch court in May to slash emissions harder and faster than planned after losing a case against an arm of Friends of the Earth. 

Shell said the proceeds will be used to fund $7 billion in additional shareholder distributions after the close of the deal, which is expected in the fourth quarter. The company also disclosed the Permian business had a pretax operating loss of $491 million in 2020, a year in which oil prices collapsed due to the pandemic.

Morgan Stanley and Tudor, Pickering, Holt & Co. were Shell’s financial advisers on the deal and Norton Rose Fulbright was its legal adviser.

ConocoPhillips dropped 0.5% to $56.76 at 4:51 p.m. in after-hours trading in New York. Shell’s American Depositary Receipts climbed 1.3% to $39.99.

The transaction is just the latest in a string of shale-related transactions in 2021. Fueled by higher cash flows on the back of a recovering oil price, independent U.S. exploration and production companies have sought out mergers to cut costs and gain scale, with the encouragement of investors who have suffered over several years of disappointing returns from the industry.

U.S. shale has also kept a lid on production in the past year despite the rebound in prices, in an effort to avoid repeating the output boom during the previous cycle that led to a glut and helped erode profitability.

©2021 Bloomberg L.P.