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Highlights
- Oil major Royal Dutch Shell plans to sell its Permian assets to US based shale gas developer ConocoPhillips.
- The all-cash transaction is expected to be worth up to US$ 9.5 billion and will transfer all of Shell’s interests at the Permian basin.
Anglo-Dutch oil giant Royal Dutch Shell PLC (LON: RDSA) plans to sell off its assets in the Permian basin to its rival ConocoPhillips for US$ 9.5 billion.
ConocoPhillips said in a statement that the deal would lead to an additional production of about 200,000 barrels of oil equivalent per day (boepd) in 2022.
Royal Dutch Shell PLC (LON: RDSA)’s share price performance
Royal Dutch Shell’s shares were trading at GBX 1,485.20, up by 3.37 per cent on 21 September at 8:17 AM BST. Shell has a market cap of £58,926.61 million and a one-year return of 38.87 per cent as of 20 September.
(Image Source: EODHD/Others)
The stock has one year forward P/E ratio of 7.25x, compared to an industry median of 7.20x. Its forward EV/EBITDA ratio is at a multiple of 3.51 compared to an industry median of 4.14x, according to data from EODHD/Others.
Royal Dutch Shell’s deal for Permian basin assets
Shell’s subsidiary, Shell Enterprises LLC, agreed to sell off its Permian business assets to oil and gas major ConocoPhillips. The US$ 9.5 billion deal will be an all cash deal and will transfer all of Shell’s interest in the Permian basin, subject to regulatory approval.
The transaction’s effective date is 1 July, and the deal is expected to close by Q4 2021. Up to US$ 7 billion from the deal’s proceeds will be used in additional shareholder distributions, and the remaining US$ 2.5 billion will be used to strengthen Shell’s balance sheet.
Shell’s Permian business segment had reported an operating loss before tax of US$ 491 million in FY 2020. The deal is expected to give Shell an after-tax gain ranging between US$ 2.4 billion and US$ 2.6 billion, subject to adjustments.
Shell’s Permian assets are about 225,000 net acres, and its current production is about 175,000 boepd.
Bottom Line
Shell’s profits come mainly from oil and gas, however, the company has set an ambitious goal of becoming net zero by 2050 and has since announced several measures as part of its strategic shift towards investing more in renewable energy, carbon capture storage and related technologies.
The strategic shift also includes reducing Shell’s dependence on fossil fuels as its main revenue source. The selling off of its Permian basin assets thus highlights its latest efforts to align with its climate targets.
Oil giants have been under fire to undertake more aggressive measures to address the climate emergency. This move also comes days after a coalition of investor groups laid out a climate roadmap for oil giants to achieve net zero emissions.
