Analyst Note| Allen Good, CFA |
Shell announced an agreement to sell its 225,000 net acre, 175 mboe/d Permian position to ConocoPhillips for $9.50 billion in cash. Deal metrics and Rystad’s estimated $14.70 billion valuation, assuming $60/barrel oil, suggests ConocoPhillips got the better of the deal. However, Rystad also estimates Shell ultimately created $3.60 billion in value from the holding after incorporating the relatively low purchase price and investment since it was first acquired in 2012 for $1.90 billion from Chesapeake. As such, it's possible to view the sale as shareholder-friendly even if it left some money on the table. Additionally, Shell will use $7 billion of the proceeds for shareholder distributions, in addition to its previously guided returns of 20%-30% of operating cash flow, with the remaining going toward debt reduction. Our fair value estimate and moat rating are unchanged.