LONDON / NEW YORK (Reuters) – Royal Dutch Shell is examining its stakes in America’s largest oil field for a potential sale, people familiar with the matter told Reuters, marking a key moment in its move away from fossil fuels at the time that it faces increasing pressure to reduce carbon emissions.
The sale could relate to all or part of Shell’s position in the US Permian Basin, located primarily in Texas, which accounted for around 6% of the Anglo-Dutch company’s total oil and gas production last year. The holdings could be worth more than $ 10 billion, the people said.
Shell declined to comment.
There is no guarantee that Shell will eventually make a deal for the assets, said the people, who requested anonymity to discuss confidential information.
Shell, the second largest energy company in the West, and its peers have come under pressure from investors to increase profits and reduce greenhouse gas emissions that warm the planet, including by divesting assets.
Any withdrawal from the Permian would mark a major shift from an area previously identified as one of the nine core basins of its zero-carbon energy transition strategy by 2050. For all activity in the Permian, the benefits are remained elusive due to the scale and constant drilling required to increase production.
Shell’s energy transition plan, one of the most ambitious in the sector, aims to gradually reduce oil and gas production and increase spending on renewable energies, hydrogen and low-carbon technologies.
A Dutch court last month ordered Shell to reduce its greenhouse gas emissions by 2030, much faster than expected. Shell plans to appeal the decision, CEO Ben van Beurden said last week, but the company will also step up emissions reductions, a move that could cut its oil and gas business.
The energy giant plans to cut oil production by 1 to 2 percent per year by 2030 through reduced investment and phase-outs. It will increase spending on renewable energy and low-carbon technologies to 25% of its overall budget by 2025.
(Graph: Shell’s energy transition expenditure – tmsnrt.rs/38UTbKj)
The Permian’s rapid growth has shaken up world oil markets over the past decade with vast production and the ability to increase and decrease production. Its potential for future gains has fueled strong deals even amid uncertainty over the long-term outlook for oil demand.
Benchmark oil prices have skyrocketed this year, with demand for fuel increasing as the coronavirus pandemic subsides. U.S. crude futures have risen 49% this year to nearly $ 72 a barrel, more than double their 2020 low.
More shale deals are likely this year, with industry experts pointing to large Permian landowners, including Chevron and Exxon Mobil, to sell off some assets to raise funds.
Consolidation of the Permian accelerated, with Pioneer Natural Resources acquiring two companies and ConocoPhillips acquiring another. Occidental Petroleum has agreed to sell part of its Permian stake to Colgate Energy for $ 508 million in order to reduce its debt.
Shell’s oil and gas production from the company’s operated and non-operated platforms in the Permian averaged 193,000 barrels of oil and gas per day in 2020, according to its website, against around 250,000 the previous year.
Overall Permian production is about 4.5 million barrels per day, or about 40% of total United States production.
A Permian sale would further reduce Shell’s footprint in the United States. The company has agreed to sell all of its US oil refineries except one. It is pursuing significant offshore production in the Gulf of Mexico and could give the green light to a new development, called Whale, in the coming months.
A full sale would mark one of Shell’s largest divestitures in recent years and reduce net debt below its target of $ 65 billion, a key part of its energy transition strategy. Net debt reached $ 71 billion at the end of March.
The Hague-based Shell bought its original Permian acreage from Chesapeake Energy in 2012 for $ 1.9 billion and inherited a joint venture Chesapeake had with Anadarko. They dissolved the company five years later, leaving Shell the 260,000 net acres it now owns.
Reporting by Ron Bousso, Jessica Resnick Ault and David French; Gary McWilliams additional reports; Writing by David Gaffen and Ron Bousso; Editing by Daniel Wallis