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Shell: No Sacred Cows in Global Portfolio

Copyright © 2021 Energy Intelligence Group
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Royal Dutch Shell’s recent exits from the Permian Basin and its Deer Park refinery in Texas make clear that no asset is sacred for the European major. But it is also not selling out to expedite a drop in its carbon emissions.

“There has been a tremendous amount of change,” CEO Ben van Beurden told the Energy Intelligence Forum 2021. "And therefore you have to be agile. You have to be nimble. You have to make sure that you continuously ask yourself, 'Is my portfolio still the right portfolio, no matter how attached you are to it?'"

Shell is clearly asking this question even about priority assets.

Earlier this year, the Anglo-Dutch major had designated the Permian as one of just nine “core” upstream assets it would fund in the coming years, while Deer Park was one of six integrated refining-chemical parks that would see future investment to integrate renewable fuels and chemicals and plastics recycling over time.

Now, both of these assets are out of Shell's portfolio.

The decision to exit is less an about-face and more a reflection of Shell’s willingness to weigh whether there is more value to be had from selling and redeploying its planned capital expenditure than from carrying through its original investment plans, Van Beurden explained.

The Permian and Deer Park assets also, in some respects, had the most marginal cases for being considered core assets in the first place.

Lacking Scale

In the case of the Permian, Shell had amassed a meaningful, largely contiguous position in the Delaware Basin courtesy of an asset fire sale from Chesapeake Energy in 2012.

But ultimately its 225,000 remaining net acres weren't material enough for a company of Shell’s size, and its active efforts to grow through M&A over the past couple years — most especially via a potential takeover of privately held Endeavor Energy — fell flat.

“So when other opportunities started presenting themselves to monetize it, it was what we had to look at … as an alternative strategy,” Van Beurden told the virtual event. “In the end, given the valuation that we managed to realize, I think this was a very attractive way of monetizing early what otherwise would have been monetized over a few decades."

ConocoPhillips agreed last month to buy the position for $9.5 billion.

On the Margins

Van Beurden admitted that Deer Park was a bit of a different case.

Shell didn’t test the waters for a divestment of the facility — instead, existing partner Pemex made an unsolicited offer for the major’s 50% stake in the 340,000 barrel per day plant on the US Gulf Coast. Shell decided to bite.

“I must admit, Deer Park probably had the weakest plans in that list of six [planned refinery parks],” Van Beurden said.

A ‘Silly Notion’

Van Beurden emphasized in both cases that the decision to exit was not influenced by calls on the Anglo-Dutch major to reduce its emissions at a faster clip.

He said that it would be a “silly notion” for companies to use divestments specifically as a tool to reduce their enterprise-level greenhouse gas emissions given that it does nothing to reduce the world’s net emissions.

At the same time, however, Van Beurden insisted it was equally “silly” to suggest oil and gas producers should hold onto all assets simply to wind them down.

The Shell boss argued that some divestments were “natural” as companies restrict oil and gas capex since certain assets will inherently have more value to other parties. But such sales were not meant to play a game of “hide and seek” on emissions.

Van Beurden noted, for instance, that Shell's Permian assets accounted for just 0.5% of its operational emissions and 5% of its global emissions.

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