Everyone’s paying attention to what’s going on in the Chinese property market with Evergrande. Amidst the news, however, most investors missed out on one of the largest oil and gas deals of the year. Royal Dutch Shell (NYSE: RSD.A) is selling a massive chunk of its U.S. oil assets, worth around $9.5 billion, to rival oil giant ConocoPhillips (NYSE: COP).
It’s pretty big news for the industry, which has seen a chaotic past few weeks following Hurricane Ida. The deal, which both companies confirmed on Monday, is part of a larger campaign from Shell in order to reduce its carbon emissions and segway into the renewable energy sector.
While neither company confirmed exactly when the transaction would take place, news outlets like the Wall Street Journal said the deal was about to close sometime soon. Around $7 billion of the deal’s proceeds will be paid back to Shell shareholders, while the remainder will be used to help shore up the company’s balance sheet.
The assets in question, which are based entirely in Texas, span around 600 miles of gas, water, and oil pipelines, as well as other infrastructure. Shell first bought most of its assets in the Permian Basin back in 2012 from Chesapeake Energy, paying just $1.9 billion at the time. After the Permian Basin became hot real estate during the Trump administration, many big oil companies decided to sell their stakes at significantly higher profits. That’s also because making new acquisitions in this market has become a lot more expensive.
“We found the cost of acquisitions in the last few years was above what we felt was going to be value-accretive for our shareholders,” said Wael Sawan, Shell’s upstream director, in an interview. “Shell doesn’t want to sell to someone who is going to make them look bad on their ESG [environmental, social, and governance] metrics even after the sale,” added analyst Subash Chandra about the deal.
Shares of both companies were down around 2-3% in response to the news. While it’s normal for the company making a big acquisition to dip a bit, it seems today’s news concerning Evergrande has had a dominating effect when it comes to other markets as well. As long as oil’s trading above $70 per barrel, as it is now, most oil producers are going to be happy in this market climate.
Royal Dutch Shell Company Profile
Royal Dutch Shell is an integrated oil and gas company that explores for, produces, and refines oil around the world. In 2018, it produced 1.9 million barrels of liquids and 11.2 billion cubic feet of natural gas per day. At year-end 2018, reserves stood at 11.4 billion barrels of oil equivalent (including 1.3 billion for equity companies), 37% of which consisted of liquids. Its production and reserves are in Europe, Asia, Oceania, Africa, and North and South America. The company operates refineries with capacity of 2.9 mmbd located in the Americas, Asia, Africa, and Europe and sells 18 mtpa of chemicals. Its largest chemical plants, often integrated with its local refineries, are in Central Europe, China, Singapore, and North America. – Warrior Trading News
