By Dhirendra Tripathi
Investing.com – Royal Dutch Shell (LON:RDSa) ADRs (NYSE:RDSa) traded 4% higher in premarket Tuesday on the energy giant’s plans to return to shareholders a large part of the cash it will get from the sale of Permian assets to ConocoPhillips (NYSE:COP).
Under the deal announced by the companies Monday, Shell has agreed to sell all its assets in the Permian basin, the most active U.S. oil field, to ConocoPhillips for around $9.5 billion. Of this, Shell plans to return to shareholders $7 billion in the form of dividends and buybacks. This will be in addition to the 20%-30% of cash flow from operations the company plans to return to its shareholders on a routine basis.
The remaining cash will be used to strengthen the balance sheet, the company said.
The deal is part of the broader industry-wide shift towards cleaner energy, which is forcing Shell to focus on its most profitable high-carbon businesses and grow a portfolio of lower-carbon assets. Just last week, Shell announced plans to build one of Europe’s biggest biofuels facilities, a 820,000-ton per year unit in the Netherlands.
Shell's exit from the Permian is a recognition that it cost too much to expand its presence there to optimal scale.
The deal with ConocoPhillips overshadowed the other announcement Shell made on Monday, with respect to operations at its West Delta platform in the Gulf of Mexico. According to the company, Hurricane Ida has inflicted significant structural damage to its offshore facilities. The WD-143 ‘A’ platform facilities will be offline for repairs until the end of 2021, and the facilities on WD-143 ‘C’ platform will be operational only in the fourth quarter of the current financial year, according to the company.
At this stage, the company said around 60% of its production in the Gulf of Mexico is back online.