Shell agrees $9.5bn sale of Permian business to ConocoPhillips

Shell has agreed to sell its business in the US Permian basin to ConocoPhillips for $9.5bn in cash, the two companies said on September 20.

Shell's Permian business currently flows 175,000 barrels of oil equivalent/day, most of which is crude oil, and this is expected to rise to 200,000 boe/d in 2022. The assets also include operated crude, gas and water pipelines and other infrastructure.

With the deal's closure, expected in the fourth quarter, Shell's remaining US oil and gas production assets will mostly be in the offshore Gulf of Mexico. The divestment follows Shell's sale of its Appalachia shale gas business in the US to National Fuel Gas Co (NFG) last year for $541mn.

"After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition," Shell's upstream director commented. 

Shell said the deal would play a "critical role" in its Powering Progress strategy, which will see the company scale back its oil operations and expand in gas, renewables and other low-carbon technologies. It will help Shell establish "a more focused, competitive, resilient portfolio that provides the energy the world needs today, whilst funding shareholder distributions as well as the energy transition."

While European majors like Shell have shifted away from US oil in recent years, their US counterparts have expanded in the sector. This marks ConocoPhillip's second acquisition of US shale assets in the last year, following its purchase of smaller rival Concho Resources for $9.7bn. 

"We were presented with a unique opportunity to add premium assets at a value that meet our strict cost of supply framework and brings financial and operational metrics that are highly accretive to our multi-year plan," ConocoPhilips CEO Ryan Lance said. "Our financial strength allowed us to structure a competitive offer for this transaction and we are very excited to enhance our position in one of the best basins in the world with the addition of Shell’s high-quality assets and talented workforce."

The US major will fund the deal will available cash, while still retaining significant cash on balance, it said. The company expected to generate $2.6bn of free cash flow from the acquired assets in 2022, and free cash flow of $1.9bn.

The transaction's effective date is July 1, 2021.