Shell Goes Full BP – Part Deux

Guest “divestment-schmivestment!” by David Middleton

Almost exactly one year ago, I wrote “Shell Goes Full BP,” about their decision to divest oil & gas assets to appease the Euro-Climatariat. Somehow, by divesting their oil & gas assets Shell would help save the climate…

Shell signs agreement to sell Permian interest for $9.5 billion to ConocoPhillips
Sep 20, 2021

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. 

[…]

Shell

Shell just sold 225,000 net acres, with net production of 175,000 BOE/d for $9.5 billion. Shell will use $7 billion to invest in green schist fund “additional shareholder distributions.”

The thing is that you can’t have a divestment without a willing and able investor.

ConocoPhillips will leave the oil & gas in the ground ramp up the “free cash flow machine”…

‘Free cash flow machine’

At the corporate level, unconventional shale oil and gas production generates steady cash flow that ConocoPhillips can use to fund legacy conventional assets with low capital needs in places like Alaska, Norway and Qatar, executives said. These assets in turn yield long-term, steady output that offsets the sharp production decline rates in the unconventional business.

“We run that as a free cash flow machine,” Lance said. “So we’re running that in a different fashion for modest growth — focus on returns of capital on capital — and this transaction makes that even better for the company going forward.”

The deal also would improve the greenhouse gas emissions intensity of ConocoPhillips’ production mix, Lance said. The company revised its emissions intensity reduction target from 35-45% for gross operated production to 40-50% for both net equity and gross operated output against a 2016 baseline.

The market reacted positively to the announcement, with shares of ConocoPhillips jumping nearly 5% in afternoon trading and several analysts raising price targets on the stock.

In a Sept. 21 research note, Mizuho Securities USA LLC said the deal was positive for ConocoPhillips’ ability to fund shareholder payouts and extended ConocoPhillips’ Delaware basin production inventory to about 35-plus years.

MKM Partners LLC analyst John Gerdes said the acquisition created “upper echelon Permian Basin asset scale” by increasing ConocoPhillips’ Delaware basin leasehold by about 50% to roughly 665,000 net acres.

[…]

S&P Global Market Intelligence
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Tom Halla
September 24, 2021 6:16 pm

So 7,5 billion of the 9.5 billion will be cash layouts to Shell shareholders. Where is the other two billion going?

ATheoK
Reply to  David Middleton
September 24, 2021 8:09 pm

Or to buy back certain stocks.

Carbon Bigfoot
Reply to  Tom Halla
September 25, 2021 4:17 pm

Had owned RDS stock for years–made a nice dividend play until the CEO decided to open his pie-hole and virtue signaled and the market didn’t buy it and the stock took a dump and the dividend was slashed. Fortunately I read the leaves and got out in time.
David which is a better play C-P or Chevron??

Rud Istvan
September 24, 2021 6:25 pm

Biggest short I have seen since Bombay (cheap China furniture) tried to claim European success decades ago. I made $27/share on that short in just 6 months. This stupid short is a bit slower, but likely much more profitable. Let’s see, an oil company getting out of oil. Right, not. Fail, for sure.

jorgekafkazar
Reply to  Rud Istvan
September 24, 2021 7:41 pm

I remember The Bombay Company furniture. It looked nice, but was some sort of dark shellac (?) over cigar box lumber–lauan? Dents would go deep into the surface, tearing up the wood fibers, with no practical way to repair. (No hot iron and moist blotter fix.) It was crap.

Pat from kerbob
Reply to  jorgekafkazar
September 24, 2021 7:55 pm

Had some of that crap
Yes it was crap
But it looked nice for a little while

Reply to  Pat from kerbob
September 25, 2021 12:30 pm

Dorm room stuff – toss when move out. :-o)

Rory Forbes
Reply to  jorgekafkazar
September 24, 2021 8:37 pm

Lauan … the red variety is poor man’s mahogany, much used for cheap veneers, door skins and furniture backs and drawer bottoms. It’s the cheap ‘go-to’ wood in southeast Asia for just about everything, from packing boxes to pallets.

mark from the midwest
September 24, 2021 6:48 pm

Over the past 5 years Conoco stock has appreciated by about 50% with a fairly steady 3% dividend yield. In the same 5 years Royal Dutch Shell has lost 16-17% of it’s value while paying something just shy of a 2% yield. Yeah that divestment things is really working out for Shell investors …

bigoilbob
Reply to  mark from the midwest
September 25, 2021 6:28 am

Nice to be able to print stock certificates. COP’s market cap is almost 30% off of it’s peak shale 2014 level, and almost 40% off it’s historic high. But to bone throw, it’s taken a smaller hit than most shalers.

https://companiesmarketcap.com/conocophillips/marketcap/

bigoilbob
Reply to  bigoilbob
September 25, 2021 8:45 am

Fair’s fair, mark. And as far as your comment goes, you are right and I am wrong. Shell has indeed suffered significantly more than COP in this century.

https://www.macrotrends.net/stocks/charts/RDS.A/royal-dutch-shell/market-cap

Qualitatively, this drain circling trend is pretty catholic within each and every facet of the hydrocarbon extraction biz…

JamesD
September 24, 2021 6:54 pm

$7.5 Billion will be used to buy back Shell stock. The stock will be given to management when they exercise their options at low strike prices. Management will then immediately sell the shares back into the market and pocket the difference. So same number of shares in the market controlling fewer assets and cash flow, with the money looted by management.

JamesD
September 24, 2021 6:57 pm

On the plus side, Shell is one of the worst “woke” companies out there. Turning the assets over to Conoco Phillips is a slight improvement. Maybe they’ll run the fields better.

Norway’s woke company, Equinor, which used to have the icky name Statoil, recently sold out of the Bakken. Again an improvement and hopefully the new owners will run the fields better.

ATheoK
Reply to  JamesD
September 24, 2021 8:23 pm

Leading the concept that Shell plans to divest all of the old Shell properties, processes and investments while spinning off new entities with new names and new burnished public images.

Likely following some ‘experts’ suggestions for earnings during the renewables boom.

It’s a shame that the best laid plans fail so often, ain’t it?
Betting on renewables is such a likely success story, not!

rocdoctom
September 24, 2021 7:20 pm

Shell thinks the greenies will like them if they do stunts like this. Surprise, they still hate you.

Rory Forbes
Reply to  rocdoctom
September 24, 2021 8:42 pm

It was Royal Dutch Shell that provided founding funding for the U of EA, home of climategate and one of the originators of AGW and fellow traveler of the IPCC, I believe.

Jeff Alberts
Reply to  Rory Forbes
September 25, 2021 12:56 am

Yeah. Climate Alarmist Scientists have gotten several orders of magnitude big oil money than all skeptics combined.

Rory Forbes
Reply to  Jeff Alberts
September 25, 2021 10:32 am

If I remember correctly, wasn’t there a group who did some research showing the alarmist received funding at a rate of 50 times skeptics. They begrudged skeptics from getting any funding at all. It was as clear a case of confession through projection as I have ever seen.

Reply to  Rory Forbes
September 25, 2021 12:50 pm

My great rebuttal line to accusation sof being funded by ‘big oil’ is “Please help me, the cheques aren’t coming in the mail.”

Of course ecobleeps are playing a moral game and people are falling for it – they claim it is wrong for people to defend themselves.

Rory Forbes
Reply to  Keith Sketchley
September 25, 2021 2:01 pm

The Left have managed to even reverse the ‘Duty of Care’ to others, first with the AGW fraud and now with the Kungflu. It’s the1st time in human history we’ve shut away well people so a tiny few infected ones can feel safe and comfy.

They are corrupting all our civil rights, including self defense … even protection of our family.

Last edited 20 days ago by Rory Forbes
Dave Andrews
Reply to  Rory Forbes
September 25, 2021 8:44 am

Yes. Hubert Lamb left the UK Met Office in 1971 and established the Climate Research Unit (CRU) at the University of East Anglia (UEA). UEA offered funds which matched those Lamb had already secured from Shell.

Lamb also displayed some scepticism about the importance of greenhouse gases in altering the climate compared to the natural forcing mechanisms working on the climate.

(see Mike Hulme’s interview by Hans Von Storch

https://mikehulme.org

Rory Forbes
Reply to  Dave Andrews
September 25, 2021 10:28 am

Thanks for the info. I had almost forgotten the details. I must have used that stuff a 100 times back when the warmunists believed ad hominem was a clever argument, immediately attempting to link any skeptical scientist with “Big Oil” funding. It was always fun to show that everyone got oil funding either directly or indirectly.

Of course one can’t even mention Lamb’s skepticism He was thrown under the bus like Roger Revelle.

Reply to  rocdoctom
September 25, 2021 12:33 pm

And they know they can ‘have them’ next time.

Pandering is stupid strategy.

Defending business: Claiming the moral high ground in ESG reporting – How to be Profitable and Moral

DMacKenzie
September 24, 2021 7:38 pm

You can get green bucks for not producing this decade, and have more reserves to sell next decade.

ATheoK
Reply to  DMacKenzie
September 24, 2021 8:45 pm

They’re more likely to cash in on the higher fossil fuel prices while selling properties, then buy back oil/gas assets after fossil fuels suffer severe price drops, when renewables put fossil fuels out of business.

Leaving the main question whether Shell’s executive staff really believe in renewables.
Ignoring the minor fact that renewables are failing execrably without any signs of a savior.

When government finally realizes how horribly renewables work, they’ll declare success and develop amnesia about their enthusiastic participation.

Pat from kerbob
September 24, 2021 7:54 pm

Conoco is also proceeding with a large gas plant here in canada
Good news for us

ATheoK
September 24, 2021 8:07 pm

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.”

Divesting real assets in favor of quick cash sounds like a plan to raise quick funds across the board. Every real asset will be sold or drained. Hedge fund and corporate raiders use this process.

Afterward, Shell will go into receivership after closing the company. Remnants and drained retirement plans will be a primary draw to buyers.

Any spin-offs will have funding to expand into their areas of interest

Retirement funds supporting employee retirement payments, i.e. employees without golden parachutes, are also likely to be drained of funds.

Steel companies used this process when divesting themselves of U.S.A. plants and retired employees.

The new owner of Shell will sell off physical office goods and real estate, closing offices while ensuring no funds are left solvent.

I knew steelworkers who could’ve retired found themselves laid off indefinitely without retirement and the steel mill shuttered while usable equipment was sold off.

StephenP
September 24, 2021 11:44 pm

The ‘futile gesture’ reminds me of the sketch in Beyond the Fringe called Aftermyth of War
.
((I’m afraid I couldn’t get the youtube link to work, maybe someone could do it)

Peter Cook: I want you to lay down your life, Perkins. We need a futile gesture at this stage. It will raise the whole tone of the war. Get up in a crate, Perkins, pop over to Bremen, take a shufti, don’t come back. Goodbye, Perkins. God, I wish I was going too.

Jonathan Miller: Goodbye, sir — or is it — au revoir?

Peter Cook: No, Perkins.

Some of their other quotes are amusing, but are probably to un-woke for modern day tastes.

http://Www.en.m.wikiquote.org/wiki/Beyond_the_Fringe

Ed Zuiderwijk
September 25, 2021 12:39 am

The Dutch have lost their touch.

Last edited 21 days ago by Ed Zuiderwijk
Pamela Matlack-Klein
September 25, 2021 4:49 am

What is the point of pretending to go Green? After all the shouting and arm-waving is over, people are still lining up to buy gas for their cars. With the obvious problems with EVs, the world is going to be dependent on fossil fuels for a long time. Just ignore the Greens and keep on business as usual.

imap://imap.googlemail.com:993/fetch%3EUID%3E/INBOX%3E187556?part=1.2.2&filename=Charging%20electric%20cars1.mp4

bluecat57
Reply to  Pamela Matlack-Klein
September 25, 2021 5:23 am

See below. I comment before I read.

bluecat57
September 25, 2021 5:23 am

If you REALLY believe, shut down the all of the production and maintain the company solely to keep others from producing any fossil fuels by buying your assets.
NO, you can’t just produce a little. You have to dedicated all of the compay’s assets and your PERSONAL wealth to doing that.

bigoilbob
September 25, 2021 6:20 am

Forget the AGW implications.

The big hitter will be shale development service costs. FYI, they are already rising, and the campaign required to profit from this acquisition will make them go thru the roof. So, they will chase breakeven for years. And years. Of course they will also buck the increasing frac hits, competitive drainage, and an administration less willing to continue the environmental, safety, health, and unfunded asset retirement obligation Ben Dovers tolerated by Trump and the states last decade.

I especially love the regularly scheduled oilprice dot com articles that proclaim that shale is “almost”, “just about”, any day now”, ready to resurge. It goes well with Mr. M’s pimping of the of the (meaning free) short term Conoco market cap increase, while conveniently ignoring the fact that Shell’s was almost identical.

Shell “Doctor Michael Burry’d” COP here, and Arted the Deal…..

observa
September 25, 2021 8:35 am

An interesting Green dilemma sans fossil fuels or nukes for Sweden-
Sweden’s green dilemma: can cutting down ancient trees be good for the Earth? (msn.com)

September 25, 2021 12:29 pm

One caution is that some of the large petroleum companies have simply been reducing their investment in huge high-risk projects in favour of investing in exploration near existing fields.

That suits PR, it may be a short-time-outlook in case eco-goons block production in future – less capital at risk, close-in fields will be drawn down by then.

Bob boder
September 25, 2021 12:49 pm

Who really cares, if Shell wants to be stupid so be it, the more woke the more broke is fine with me.

Robert Hanson
Reply to  Bob boder
September 26, 2021 3:29 pm

I seem to remember this wasn’t a Shell plan at all. It was recently required by the woke Dutch government, over the objections of Shell. Typical government planning, require an oil company to divest from oil. That should work out well…

ResourceGuy
September 25, 2021 3:33 pm

They might as well. They ruined enough engines in the U.S. with old refineries with notable lack of reinvestments. Nobody wanted their dirty units when they finally went up for sale.

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