Sunday, January 16

Shell Investors Receive $ 7 Billion Surprise Payment On Shale Deal

Royal Dutch Shell Plc shareholders will receive a windfall payment of $ 7 billion after the company promised to give them three-quarters of the proceeds from the sale of Permian’s shale oil fields to ConocoPhillips.

The cash promise comes less than two months after Shell increased its dividend by nearly 40% and began $ 2 billion in share buybacks. It’s further proof that the energy giant is working hard to regain investor faith after making a historic cut in its payments last year in the depths of the Covid-19 pandemic.


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“For investors elsewhere, a divestment immediately assigned to a $ 7 billion buyback, with balance sheet strengthening at the top, is rare,” analysts at Bernstein Research said in a note. “It shows without any doubt that Shell is focused on recovering shareholders.”

Shell’s class B shares rose 4.3% to 1,492 pence as of 11:19 am in London.

Of the $ 9.5 billion Shell will receive from the sale of the Permian on Monday, $ 2.5 billion will go towards debt reduction. For the rest, “the base case is for that to turn into share buybacks,” Wael Sawan, Shell’s upstream director, said in an interview after the deal was announced on Monday.

The final decision will be made by the company’s board, likely in the fourth quarter when the transaction formally closes, he said. The $ 7 billion payment will be in addition to the company’s previous commitment to distribute between 20% and 30% of cash flow from operations to investors, Shell said in a statement.

Shareholder profitability

The world’s leading oil producers and US shale explorers have increasingly focused on shareholder profitability rather than growth, after years of expansion. Oil prices near the highest level in three years have provided them with plenty of cash to do so.

“Being able to transact with a solid and healthy oil price compared to what it has been in recent years, and in a market that is intensely consolidating right now, is a prudent opportunity for us to seize it,” Sawan said. The deal gives Shell the equivalent of more than a decade of cash flow from Permian’s assets, he said.

The deal will give ConocoPhillips additional daily production in 2022 of about 200,000 barrels of oil equivalent, it said in a statement Monday. That will make the Houston-based company one of Permian’s largest producers.

“The exit is on a strong foundation, with the Permian increasingly moving away from Shell’s long-term strategy, providing a key reduction in (methane) emissions exposure.” – Will Hares, Global Energy Analyst at Bloomberg Intelligence.

However, in Shell’s hands, Permian’s operations were “subscale,” Sawan said. “To really unlock the full value of an asset like this, you need scale.”

Shell’s withdrawal from the Permian comes as the Anglo-Dutch giant reconfigures its strategy in favor of less carbon-intensive fuels while targeting net zero emissions. A Dutch court ordered Shell in May to cut emissions harder and faster than planned after losing a case against a branch of Friends of the Earth.

© 2021 Bloomberg

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