Shell exits Permian oilfield in $9.5 bn deal to ConocoPhillips

Shell LNG

Royal Dutch Shell has agreed to sell its Permian Basin assets to ConocoPhillips for $9.5 billion in cash, an exit from the largest U.S. oilfield for the energy major shifting its focus to the clean energy business.

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.

Shell is under pressure from investors to reduce fossil-fuel investments to help reduce global carbon emissions and fight climate change.

Europeans such as Shell and BP have set targets to move away from crude production while investing in non-fossil energy sources like solar and wind power.

U.S. producers including Exxon Mobil and Chevron are doubling down on hydrocarbons.

ConocoPhillips is acquiring around 225,000 net acres, as well as over 600 miles of associated infrastructure. 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.

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.

Wael Sawan, the company’s director of upstream, told Reuters, the company would continue to invest in its top oil and gas assets globally, and while it had looked at options which would have retained and boosted its Permian acreage in recent years, it was decided the position did not have sufficient scale for Shell to continue to operate it.

U.S. will continue to account for around one-third of Shell’s global spending, as it focuses on its Gulf position as well as petrochemicals and renewables.