ConocoPhillips will acquire Royal Dutch Shell Plc’s Permian Basin assets for $9.5 billion in cash. Thus, accelerating the consolidation of the largest U.S. patch. The Anglo-Dutch oil and gas giant seems to be stripping assets. The doing away of the assets could be because it has come under increased pressure to cut its carbon emissions.
This deal will give ConocoPhillips additional daily production in 2022, about 200,000 barrels of oil equivalent. Thereby making the Houston-based company one of the largest Permian’s producers.
The Permian straddling West Texas and New Mexico is the busiest shale patch and accounts for almost half of the current activity in U.S. oil fields. ConocoPhillips had already boosted its footprint when it took over independent producer Concho Resources Inc. for about 13 billion dollars.
ConocoPhillips stated that it would fund the transaction with cash on hand. The Houston-based company will get Shell’s Delaware basin assets in Texas’ Permian Basin. The investments amount roughly to 225,000 net acres. The company has declared that it will raise the production to 200,000 barrels per day. Presently Shell’s current production level is 175,000 barrels per day.
The deal was expected for months. It is another sign of consolidation in the U.S. shale patch. However, it reverses Shell’s efforts to invest in the region from a few years ago. It also shows signs of the diverging expectations of the European and U.S.- based oil and gas majors.
Shell’s second-quarter earnings released this summer showed active recovery signs in the returns. The recovery was faster than expected because of its previous year’s price shock. Hence, this $9.5 billion will be utilized in the additional shareholder distribution and balance sheet strengthening.