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Royal Dutch Shell PLC ADR Class B RDS.B

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Morningstar’s Analysis

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Shell Exits Permian; Directs Proceeds to Shareholder Distributions

Allen Good, CFA Sector Strategist

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.

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Company Profile

Business Description

Royal Dutch Shell is an integrated oil and gas company that explores for, produces, and refines oil around the world. In 2020, it produced 1.8 million barrels of liquids and 9.2 billion cubic feet of natural gas per day. At year-end 2019, reserves stood at 9.0 billion barrels of oil equivalent, 52% of which consisted of liquids. Its production and reserves are in Europe, Asia, Oceania, Africa, and North and South America. The company operates refineries with capacity of 2.8 mmb/d located in the Americas, Asia, Africa, and Europe and sells 15 mtpa of chemicals. Its largest chemical plants, often integrated with its local refineries, are in Central Europe, China, Singapore, and North America.

Carel van Bylandtlaan 30
The Hague, 2596 HR, Netherlands
T +31 703779111
Sector Energy
Industry Oil & Gas Integrated
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 87,000