Shell Draws Limit on US Shale Oil

Posted Sep 21, 2021 at 9:19 AM

Shell turns the page on its Texas adventure. The Anglo-Dutch oil company announced late Monday that it was selling its assets in the Permian Basin, the main shale oil and gas producing region that straddles both Texas and New Mexico.

The US company ConocoPhillips will pay 9.5 billion dollars in cash to buy these 910 square kilometers of land in Texas, as well as about 1,000 kilometers of water and oil transportation pipelines necessary for its operation. The assets sold by Shell produce 175,000 barrels per day.

Shareholder pressure

“This sale accelerates Shell’s energy transition strategy,” write analysts at Jefferies. Like its European competitors BP and TotalEnergies, the main Anglo-Dutch company seeks to reduce its exposure to oil, to the benefit of gas and renewables.

The sale will reduce Shell’s production by 7% and automatically increase the natural gas share of the group’s portfolio from 45% to 47%, according to Jefferies. It will reduce its greenhouse gas emissions by 2%, an important point as the company is under increasing pressure from its shareholders on issues related to global warming. A Dutch court even ordered Shell to cut emissions last spring.

A growing gap

What will Shell do with this money? The majority, $ 7 billion, will be distributed to shareholders in the form of dividends or share buybacks. The balance will reduce the group’s debt.

The operation illustrates the growing gap between European oil companies, which seek to reduce their carbon footprint, and their US counterparts, who continue to increase their hydrocarbon production. ConocoPhillips had already spent more than $ 13 billion last year to take over Concho Resources, also present in the Permian Basin.

The flagship shale oil and gas region has entered a phase of consolidation accelerated by the health crisis that caused prices to fall last year.

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