Shell has sold its Permian holdings to ConocoPhillips for $9.5 billion.
For Shell, getting out of its holdings in the biggest onshore US oil play was based on “our focus on value over volumes.”
For ConocoPhillips, adding 225,000 acres and 175,000 BOE/D amounts to doubling down on the Permian, where it paid $9.7 billion a year ago to buy Concho Resources, instantly establishing itself as a major player in the dominant shale-oil play.
One difference in the deal: The Concho deal made not long after last year’s oil price crash was all stock. With oil prices up, the company paid cash for the Shell acreage.
Shell will use that money to try to boost its stock price, with a plan to spend $7 billion to buy back shares and spend the balance on “strengthening of the balance sheet.”
From Shell’s standpoint, this acreage, which is heavily tilted toward high-cost shale production, is a depreciating asset. Last year, it reduced the estimated value of its Permian holdings by $491 million, ending the year at a $10.5 billion valuation.
While Shell sold it for $1 billion less than that book value, it said the deal will result in a $2.4 to $2.6 billion after-tax gain when it closes at year end, depending on adjustments at that time.
"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, upstream director at Shell.
ConocoPhillips did not comment immediately.
Investors welcomed news of the deal by pushing up Shell’s price to $39.40 in late trading. It was still down 2.2% on a bad day for stock prices generally.
At a time when stocks have risen to historic levels, its shares have risen 9.7% over the past 12 months and are well below the $60 range common in the years before the early 2020 COVID-19 price crash.
ConocoPhillips shares were mixed on the news, closing price at $59.07. Over the past 12 months it is up 66%, suggesting that buying big in the Permian has been a good deal for its shareholders.
It remains to be seen how this will go for workers. Job cutting is a standard part of the formula used to maximize profits by managing more acres without that many more people. After the Concho deal closed, ConocoPhillips announced it planned to lay off 500 Houston workers this year.
