NEW YORK / HOUSTON, June 15 (Reuters) – A group of oil companies, seeing continued profits in shale, reflect on Royal Dutch Shell (RDSa.L) stakes in America’s largest oil field as the European giant contemplates an exit from the Permian Basin, according to market experts.
The potential sale of Shell’s Permian stakes in Texas would be a litmus test of whether rivals are willing to bet on shale profitability through the energy transition to reduce carbon emissions.
Shell is reportedly following in the footsteps of other producers, including Equinor (EQNR.OL) and Occidental Petroleum (OXY.N) who have divested shale assets this year, seeking to reduce their debt and carbon output in the face of pressure from investors. .
Shell, which declined to confirm a Reuters report on Sunday that it was weighing the successful sale of its Texas shale assets, also did not comment on the story.
To showcase its 260,000 acres (105,200 hectares) in the Permian, Shell has opened a data room, according to two people familiar with the matter.
ConocoPhillips (COP.N), Devon Energy (DVN.N), Chevron Corp (CVX.N), EOG Resources (EOG.N) and certain private equity firms are all potential bidders for some or all of Shell’s assets in the Permian, according to analysts. ConocoPhillips and Chevron declined to comment and the others did not immediately respond to requests for comment.
U.S. oil production is still around 2 million barrels per day below its record production of nearly 13 million barrels per day reached before the coronavirus pandemic, making it the world’s largest producer.
Oil prices rebounded in 2021, with demand for fuel increasing as the pandemic recedes. Benchmark U.S. crude futures have risen 49% this year to nearly $ 72 a barrel, more than double their 2020 low.
In this context, Shell’s area estimates range from $ 7 billion to over $ 10 billion, with the latter implying a valuation of nearly $ 40,000 per acre.
This would be in line with the price per acre that Pioneer Natural Resources (PXD.N) paid for DoublePoint Energy in April, the costliest deal since producers scrambled in 2014-16 to take positions in the Permian.
Most Permian deals this year have been between $ 7,000 and $ 12,000 an acre, said Andrew Dittmar, senior mergers and acquisitions analyst at data provider Enverus.
A cash deal seems preferable for Shell, which could channel the proceeds towards debt reduction or clean energy investments. To increase the number of bidders, Shell could accept shares in the buyer or divide the land into several lots, people familiar with the process said.
ConocoPhillips has acreage close to Shell’s holdings and analysts say it is a top candidate for the assets. Rival Chevron also has operations nearby that could make a deal attractive, said Rystad Energy’s Artem Abramov.
Devon Energy is probably the smallest company that could bid on acreage, analysts said. Sven Del Pozzo, analyst at IHS, said the assets could be valuable for the Oklahoma City-based company. The company declined to comment.
Smaller competitors are less likely to buy the assets because of the scale of the sale, analysts say, and because acquisition funding has been limited since the oil crash last year.
“Funding for fossil fuels is under tremendous pressure,” said Paul Sankey, analyst at Sankey Research in New York. “Banks have a number of sectors to choose from to finance and it is much easier for them not to finance oil, gas and coal.”
The assets are located in the Delaware Basin, the westernmost shale field of the Permian. The location discourages Pioneer Natural Resources, which is concentrated in the Midland region further east.
Some producers who might be eligible for funding might avoid it, Rystad’s Abramov said. Mewbourne Oil, the largest private producer in Delaware, where Shell operates, has decades of good inventory in its existing acreage, making an acquisition unnecessary. The company did not respond to a request for comment.
Occidental operates in partnership with Shell and is a logical solution for ownership, but continues to strengthen its balance sheet following its acquisition of Anadarko Petroleum, said Alex Beeker, senior business analyst at Wood MacKenzie. Occidental declined to comment.
Reporting by Jessica Resnick-Ault and Jennifer Hiller, additional reporting by David French in New York and Ron Bousso in London Editing by Marguerita Choy
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