ConocoPhillips Caps Off ‘Exceptional Year’ with Close of Shell Permian Acquisition

ConocoPhillips Co. wrapped up an “exceptional year” with the completion of its $9.5 billion all-cash acquisition of Royal Dutch Shell Plc’s Permian Basin asset, CEO Ryan Lance said in a Dec. 1 release.

“The completion of this acquisition caps off an exceptional year and significantly strengthens our company as we head into 2022,” commented Lance.

Houston-based ConocoPhillips entered into its agreement in September to acquire the Shell Permian assets, located entirely within the Delaware Basin in West Texas. The assets include roughly 225,000 net acres and producing properties plus over 600 miles of operated crude, gas and water pipelines and infrastructure. Estimated 2022 production from these assets is expected to be approximately 200, 000 boe/d, roughly half of which is operated.

In addition to further bolstering its profitability with projections to generate $10 billion in free cash flow over the next 10 years as a result of the acquisition, ConocoPhillips expects the addition of Shell’s Permian asset to its portfolio to improve its greenhouse-gas (GHG) intensity reduction target for 2030 by 5%.

“This deal was justified on three key merits: it meets our rigorous cost of supply framework, we see a way to drive efficiencies from the assets, and the transaction makes our 10-year plan better,” Lance added in the release. “We believe the addition of these high-quality assets improves our underlying business drivers, expands our cash from operations, enhances our ability to deliver higher returns on and of capital, and lowers our average GHG intensity.”

The transaction was said to be funded from available cash with ConocoPhillips still retaining a significant level of cash on the balance sheet for general purposes. After customary closing adjustments, cash paid for the acquisition is approximately $8.6 billion, with an effective date of July 1, according to the Dec. 1 release announcing completion of the transaction.

Shell plans to use cash proceeds from the transaction, which marked the European supermajor’s exit from the Permian Basin, to fund $7 billion in additional shareholder distributions. Commencement of the first tranche in the form of share buybacks of up to $1.5 billion began on Dec. 2. The form and timing for distributing the remaining $5.5 billion will be announced in early 2022.

Morgan Stanley & Co. LLC and Tudor, Pickering, Holt & Co. served as Shell’s financial advisers and Norton Rose Fulbright was legal adviser to Shell for the divestment.

Goldman Sachs & Co. LLC was ConocoPhillips’ exclusive financial adviser and Baker Botts LLP served as legal adviser to the company for the acquisition.