Finance

Shell sells billions in assets and exits US oil and gas field

These are assets in the Permian field in the state of Texas, where Shell extracts the equivalent of approximately 175,000 barrels of oil from the ground every day.

‘Core’ region

Shell has had rights in the area since 2012 and currently operates on an area of ​​more than 900 square kilometers. It had been clear for some time that Shell was considering divesting interests in the oil and gas field.

The total Permian field has an area almost four times that of the whole of the Netherlands and accounts for 40 percent of the US oil and gas production.

Like other oil companies such as Chevron and Exxon, Shell exploits part of the field. It currently accounts for 6 percent of Shell’s oil and gas production. The Permian field was labeled one of the company’s nine ‘core’ regions in Shell’s strategy at the end of last year.

Reduction of CO2 emissions

However, due to a court decision in The Hague earlier this year, Shell must work faster on reducing CO2 emissions. To achieve this, Shell must, for example, invest more in CO2-neutral energy production, reduce emissions from its own factories, encourage customers to do the same and spend less money on oil and gas extraction.

In this video we explain exactly what the historic ruling of the judge that restricts Shell:

‘Attractive deal’

Shell hopes to complete the deal with ConocoPhillips in the fourth quarter of this year. In a statement, Shell speaks of an ‘attractive deal’.

From the proceeds, 7 billion dollars will then be distributed among the shareholders, for example through share buybacks. Shell wants to use the rest of the money to strengthen its own balance sheet.

Loss in corona year

The way in which the oil in the Permian field is extracted, the so-called ‘fracking’ (see box), usually involves more costs than with normal oil extraction. The low oil prices of recent years made it very difficult to be profitable in the area.

In the corona year 2020, Shell suffered a gross loss of 491 million dollars on its assets. But now oil prices have risen sharply again. This makes it possible to sell the assets for a relatively favorable price.

Fracking

Oil and gas are produced in the Permian basin by means of ‘fracking’. In Dutch this is called shale oil and gas. This relatively new form of oil extraction has greatly increased the production capacity of the US in recent years.

Environmental organizations have criticized the fact that this method of oil and gas extraction causes additional damage to the environment. Fracking involves injecting water with chemicals into the rock under high pressure. That rock breaks, after which oil and gas are released. This way of generating energy is not used in Europe.

Shell remains a major player

Bloomberg news agency reports that the after-market value of ConocPhillips fell slightly in the hours after the deal, while Shell’s rose slightly.

The move does not mean that Shell is turning its back on the United States. Shell has emphasized supplying energy to American customers for more than a century. The company says it plans to remain a major energy player in the country for decades to come.

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