Shell Shelving Shale. BP Edging to Exit Fossil Fuels

September 21, 2021

The ship is taking on water.

Reuters:

LONDON, Sept 20 (Reuters) – Deep in the Oman desert lies one of BP’s more lucrative projects, a mass of steel pipes and cooling towers that showcases the British energy giant’s pioneering natural gas extraction technology.

The facility earned BP Plc (BP.L) more than $650 million in profits in 2019, according to financial filings reviewed by Reuters. Yet the oil major agreed to sell a third of its majority stake in the project earlier this year. The deal exemplifies a larger strategy to liquidate fossil-fuel assets to raise cash for investments in renewable-energy projects that BP concedes won’t make money for years.

BP’s big bet is emblematic of the hard choices confronting Big Oil. All oil majors face mounting pressure from regulators and investors worldwide to develop cleaner energy and divest from fossil fuels, a primary source of greenhouse-gas emissions that cause global warming. That scrutiny has increased since early August, when the United Nations panel on climate change warned in a landmark report that rising temperatures could soon spiral out of control.

BP Chief Executive Bernard Looney, who took office in February 2020, is gambling that BP can make the clean-energy transition much faster than its peers. Last year, he became the first major oil CEO to announce that he would purposely cut future production. He aims to slash BP’s output by 40%, or about 1 million barrels per day, an amount equal to the UK’s entire daily output in 2019. At the same time, BP would boost its capacity to generate electricity from renewable sources to 50 gigawatts, a 20-fold increase and equivalent to the power produced by 50 U.S. nuclear plants.

Ed Crooks is Vice Chair of Americas at Wood Mackenzie.

Shell.us:

Houston − Shell Enterprises LLC, a subsidiary of Royal Dutch Shell plc, has reached an agreement for the sale of its Permian business to ConocoPhillips, a leading shales developer in the basin, for $9.5 billion in cash. The transaction will transfer all of Shell’s interest in the Permian to ConocoPhillips, subject to regulatory approvals.

“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. “This decision once again reflects our focus on value over volumes as well as disciplined stewardship of capital. This transaction, made possible by the Permian team’s outstanding operational performance, provides excellent value to our shareholders through accelerating cash delivery and additional distributions.”

Shell’s Upstream business plays a critical role in the Powering Progress strategy through a more focused, competitive and resilient portfolio that provides the energy the world needs today whilst funding shareholder distributions as well as the energy transition.

The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30% of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021.

Shell has been providing energy to U.S. customers for more than 100 years and plans to remain an energy leader in the country for decades to come.

Notes to editors

  • Shell’s Permian business includes ownership in approximately 225k net acres with current production of around 175 thousand barrels equivalent per day.
  • This transaction constitutes a Class 2 transaction for RDS plc under the UK Listing Rules. The gross assets that are subject of this transaction amounted to $10.5 billion December 31, 2020. The Permian business recorded a before-tax operating loss of $491 million for the year ended December 31, 2020. The transaction is expected to result in an after-tax gain of $2.4 to $2.6 billion, subject to adjustments.
  • A further update to Shell’s oil production outlook and portfolio will be provided with fourth quarter earnings.
  • Majority of Midland-based Permian employees and many Houston-based employees will be offered employment by ConocoPhillips with effect upon closing in accordance with the terms and conditions of the transaction.
  • Since 2017, Shell’s Permian operations have reduced green house gas and methane intensity by 80% through investment in infrastructure and technology.
  • Morgan Stanley & Co. LLC and Tudor, Pickering, Holt & Co. are serving as Shell’s financial advisors and Norton Rose Fulbright is serving as Shell’s legal advisor for the divestment.
  • Shell is one of America’s leading energy companies with interests in 50 states employing more than 15,000 people. Shell’s U.S. portfolio of operated companies and interests consists of oil, natural gas, petrochemicals, gasoline, lubricants, and other refined products along with renewables such as wind, solar, and mobility options like electric vehicle charging and hydrogen. In the U.S. Shell is also investing in an integrated power business that will provide electricity to millions of homes and businesses.

UPDATE:

Financial Times (Paywall):

In May, a district court in the Netherlands ordered the company to slash its net carbon pollution by 45 per cent compared with 2019 levels by 2030, prompting chief executive Ben van Beurden to say that Shell would hasten plans to reduce emissions. Shell said on Monday that the deal would include roughly 225,000 net acres of land that produce some 175,000 barrels of oil equivalent a day. Houston-based ConocoPhillips said it expects to produce about 200,000 b/d from the properties by next year. “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, Shell’s upstream director.

The US shale oil and gas industry, bedevilled for years by steep financial losses, is undergoing a period of rapid consolidation that has fuelled tens of billions of dollars in deals over the past year and a half. Shell said that producing oil and gas would continue to play a “critical role” in its strategy providing “the energy the world needs today whilst funding shareholder distributions as well as the energy transition.”

9 Responses to “Shell Shelving Shale. BP Edging to Exit Fossil Fuels”

  1. jimbills Says:

    BP does look like it’s altering course – not enough, but it’s better than before. I’m more skeptical of Shell. They resumed their Arctic plans again last year, a reverse from their decision to stop it in 2015, and all they did really was just sell the shale to another oil company and give the proceeds to their shareholders instead of investing in cleaner sources:
    https://www.highnorthnews.com/en/shell-plans-resume-offshore-oil-and-gas-exploration-arctic-alaska

  2. J4Zonian Says:

    BP’s going straight. Shell’s going straight. And Exxon’s just going to give away puppies from now on.
    Right.

    • dumboldguy Says:

      What’s wrong with free puppies? I prefer yellow Labs, myself.

    • greenman3610 Says:

      agree it’s not all sunshine and lollipops.
      Lot’s of work to do. Ro Khanna’s hearing next month will, I hope, be lit.

    • rhymeswithgoalie Says:

      One of the counter-intuitive aspects of market investment is that companies faced with potentially costly lawsuits present uncertainty for investors, which is why after a giant penalty/payout is announced the price of the stock goes up.

      Right now the oil companies are under a climate change cloud that threatens future investor earnings, and I think the market is ready to reward them if they show a coherent alternative path to making money. Shell’s been edging into some alternatives for a while now (establishing charge points in Europe), so I think they’ve accepted reality. Being major corporations, they’ll find a way to corral a lot of their stranded assets into a few subsidiaries, spin those off, let them eat bankruptcy and write them off. Some will hold off too long and get burned.

      The transition of the majors away from fossil fuel production is not a story of being virtuously green, but by being forced by the investors (who will sue their behinds) to shift to something else. (Congressional hearings will get the CEOs to commitments under oath which give shareholder lawsuits more teeth.)

  3. Keith McClary Says:

    So, we have oil companies selling oilfields to other oil companies.

    • rhymeswithgoalie Says:

      The game is going to be a cross between Musical Chairs and Hot Potato.

      It looks like a lot of the money Shell is getting from this sale will be redirected into their growing variety of alternative energy or green projects, most of which* look like viable paths to future happy happy joy joy profits

      ______
      *I don’t see their offshore Carbon Capture & Storage project as either promising or green.

  4. rhymeswithgoalie Says:

    Back ~1981 International Harvester was hit by many problems at once and started losing jaw-dropping amounts of money in its farm and construction equipment businesses. To stay afloat, it sold off one of the few profitable parts of the business (their popular semis), something that was counter-intuitive to me at the time.

    Shell’s offshore production is still suffering from Ida damage, so it’s hard to ditch, but there’s easy money to be made giving up their lower-overhead West Texas fields. I think that played a part in deciding which part of their FF business to divest first.


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