Royal Dutch Shell is set to sell its Permian Basin assets to ConocoPhillips for $9.5 billion in cash, an exit from the largest United States oilfield for the energy major, which is now shifting its focus to the clean energy transition.
Earlier in the year, the company likewise said it was launching a major divestment of its Nigerian assets, especially those in the shallow-water and onshore, in a deal which could be one of the hugest in the oil and gas industry in Africa ever.
The Minister of State, Petroleum Resources, Chief Timipre Sylva and Shell officials have confirmed that talks have been ongoing, although a recent report announced that some glitches were holding up the discussions.
The Nigerian National Petroleum Corporation (NNPC), a major party to the ongoing talks, last month pledged to protect the interest of Nigeria in any transaction involving international oil companies, including shell, if they are interested in divesting from the country.
Group Managing Director of the corporation, Mallam Mele Kyari, said that although the NNPC cannot stop any of the oil concerns from deciding to sell off any of their assets, but the rules must be strictly followed.
Against the backdrop of plans by Shell to fully sell off its subsidiary, Shell Petroleum Development Company (SPDC) “because the company’s future plans no longer align with the operations of the Nigerian subsidiary” the NNPC boss noted that having learnt from previous experiences.
He noted that the corporation was developing requisite divestment policies that will provide clear guidelines and criteria for exiting of partners’ interest in all its Joint Venture (JV) and Production Sharing Contracts (PSC) arrangements.
Kyari stated that Nigeria will leverage on its rights of pre-emption as well as evaluating the operational competency and track records of new partners, adding that the corporation will pay particular attention to abandonment and relinquishment costs; severance of operator staff; third party contract liabilities; and competency of the buyer as well as post purchase competence in technical, operational, and financial issues.
In May, Shell’s Chief Executive Officer, Ben van Beurden, while speaking at the company’s annual general meeting, said that Shell could no longer afford to be exposed to the risk of theft and sabotage.
But for ConocoPhillips, it is the second sizable acquisition in a year in the heart of the U.S. shale industry, as American and European producers diverge in whether to focus on hydrocarbons going forward.
Like all of the world’s largest oil companies, Shell is under pressure from investors to reduce fossil-fuel investments to help reduce global carbon emissions and fight climate change.
Shell and BP Plc have set targets to slowly move away from crude production while investing in non-fossil energy sources like solar and wind power, while U.S. producers including Exxon Mobil and Chevron are doubling down on hydrocarbons.
Through the deal, ConocoPhillips sides with the latter, but concurrently announced it would tighten its targets for cutting greenhouse gas emissions, an acknowledgement of heightened focus on climate considerations.
ConocoPhillips is acquiring around 225,000 net acres, as well as over 600 miles of associated infrastructure, according to its statement announcing the transaction. This builds on its existing portfolio of 750,000 net acres in the Permian.
U.S. shale producers have used mergers and acquisitions to boost their size to compete against the largest operators and lower production costs through economies of scale.
To help pay for the deal, ConocoPhillips will hike its own divestment targets by 2023 to between $4 billion and $5 billion, up from between $2 billion and $3 billion.
For Shell, selling the Permian assets will leave its U.S. oil and gas production almost entirely in the offshore Gulf of Mexico, where it is the largest single producer. It sold its Appalachian gas assets last year.
Shell will return $7 billion of the proceeds to shareholders as dividends on top of existing commitments, with the rest going to pay down debt, it said. Conoco also announced it would increase quarterly cash payments to shareholders by 7 per cent from December 1, according to a Reuters report.