Royal Dutch Shell (NYSE: RDS.A) announced on Monday that it would be departing the Permian Basin, pending regulatory approval of a sale of the firm's regional assets to ConocoPhillips (NYSE: COP).
The sale is netting a substantial $9.5 billion cash payout for Shell; $7 billion of said payout will go to shareholders (more than likely through stock buybacks), while the remainder will stay in the company's custody.
The deal will mark Shell's complete withdrawal for onshore oil production in Texas. However, the company will still maintain its offshore production in the state.
"After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition," said Wael Sawan, Shell's upstream director. "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."
On ConocoPhillps' end, the company is receiving prime real estate in the United States' most lucrative oil field. In terms of operations, Shell's Permian Basin operations equated to roughly 175,000 barrels per day, which should prove to be a promising addition to COP's existing Permian production capacity, which averaged 85,000 barrels per day in 2020. The company as a whole produced 385,000 barrels per day.
An interesting aspect of the deal is COP's promise to increase the reduction of its carbon footprint as part of the deal. As climate issues continue to gain prominence among regulators, members of the energy sector have found themselves under increasing scrutiny, with growing calls for accountability by major carbon-producing corporations.
"Shell doesn't want to sell to someone who is going to make them look bad on their ESG metrics even after the sale," said Northland Capital Markets Analyst Subash Chandra. "It used to be, 'Just show me the money.'"