(Adds company comment in sixth paragraph, final paragraph.)
By Jessica Resnick-Ault and Jennifer Hiller
NEW YORK/HOUSTON, June 15 (Reuters) - A cadre of oil
companies, seeing continued profits in shale, are mulling Royal
Dutch Shell's holdings in the largest U.S. oil field as
the European giant considers an exit from the Permian Basin,
according to market experts.
The potential sale of Shell's Permian holdings, located in
Texas, would be a litmus test of whether rivals are willing to
bet on shale's profitability through the energy transition to
reduce carbon emissions.
Shell would follow in the footsteps of other producers,
including Equinor and Occidental Petroleum
that have shed shale assets this year, looking to cut debt and
reduce carbon output in the face of investor pressure.
Shell, which declined to confirm a Reuters report on Sunday
that it was weighing the blockbuster sale of its Texas shale
assets, also did not comment for this story.
To showcase its 260,000 acres (105,200 hectares) in the
Permian, Shell has opened a data room, according to two people
familiar with the matter.
ConocoPhillips, Devon Energy, Chevron Corp
, EOG Resources and some private energy houses
are all potential bidders for some or all of Shell's Permian
assets, according to analysts. Chevron declined to comment and
the others did not immediately respond to requests for comment.
U.S. oil output is still roughly 2 million barrels per day
below its all-time record production of nearly 13 million bpd
hit before the coronavirus pandemic, that made it the world's
top producer.
Oil prices have rebounded in 2021 with fuel demand rising as
the pandemic ebbs. Benchmark U.S. crude futures are up
49% this year to nearly $72 per barrel, more than double their
2020 lows.
Against this backdrop, estimates for Shell's acreage run
from $7 billion to over $10 billion, the latter implying a
valuation of almost $40,000 an acre.
That would be in line with the per-acre price Pioneer
Natural Resources paid for DoublePoint Energy in April,
the most costly deal since a 2014-2016 rush by producers to grab
positions in the Permian.
Most Permian deals this year have closed between $7,000 and
$12,000 per acre, said Andrew Dittmar, senior mergers and
acquisitions analyst at data provider Enverus.
A cash deal seems preferable for Shell, which could deploy
the proceeds into debt reduction or clean-energy investments. To
increase the number of bidders, Shell could accept shares in the
buyer or divide the land into multiple packages, people familiar
with the process said.
LIKELY SUITORS
ConocoPhillips owns acreage close to Shell's holdings and
analysts say it is a top contender for the assets. Rival Chevron
also has nearby operations that could make a deal attractive,
said Artem Abramov, of Rystad Energy.
Devon Energy is likely the smallest company that could bid
on the acreage, according to analysts. Sven Del Pozzo, analyst
at IHS, said the assets could be valuable to the Oklahoma
City-based company.
Smaller competitors are less likely to buy the assets
because of the size of the sale, analysts said, and because
acquisition financing is limited since last year's oil price
crash.
"Financing of fossil fuels is under massive pressure," said
Paul Sankey, analyst at Sankey Research in New York. "The banks
have a choice of multiple sectors to finance and it's a lot
easier for them to not finance oil, gas and coal."
The assets are located in the Delaware Basin, the
westernmost shale field within the Permian. The location deters
Pioneer Natural Resources, which is focused in the Midland
region, located further east.
Some producers that could qualify for financing might avoid
it, said Rystad's Abramov. Mewbourne Oil, the largest private
producer in the Delaware, where Shell operates, has decades of
good inventory in its existing acreage, making an acquisition
unnecessary. The company did not respond to a comment request.
Occidental operates in partnership with Shell and is a
logical fit for the property, but is still shoring up its
balance sheet following its acquisition of Anadarko Petroleum,
said Alex Beeker, principal corporate analyst at Wood MacKenzie.
Occidental declined to comment.
(Reporting by Jessica Resnick-Ault and Jennifer Hiller,
additional reporting by David French in New York and Ron Bousso
in London
Editing by Marguerita Choy)
