ConocoPhillips to Acquire Shell’s Permian Business for $9.5B

ConocoPhillips (COP), the energy major focused on hydrocarbon exploration, recently announced that it has agreed to acquire Shell’s Permian business for $9.5 billion. The transaction is expected to close in the fourth quarter of 2021.

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The acquisition will give ConocoPhillips access to Shell’s producing properties located in Texas, which spans an area of about 225,000 net acres, along with more than 600 miles of operated crude, gas and water pipelines and infrastructure. The anticipated production from these assets in 2022 is roughly 200 million barrels oil equivalent per day (MBOED). Further, with free cash flow of $1.9 billion from these assets, the company expects to generate $2.6 billion of cash from operations.

The CEO of ConocoPhillips, Ryan Lance, said, “Our financial strength allowed us to structure a competitive offer for this transaction and we are very excited to enhance our position in one of the best basins in the world with the addition of Shell’s high-quality assets and talented workforce. The transaction will be funded from available cash while still retaining a significant level of cash on the balance sheet for general purposes.” (See ConocoPhillips stock chart on TipRanks)

Meanwhile, the company has increased its quarterly dividend by about 7%. It will now pay a quarterly dividend of 46 cents per share. The dividend will be paid on December 1, 2021, to shareholders of record as of October 28, 2021. The company’s annual dividend of $1.75 per share reflects a dividend yield of 3% based on Monday’s closing price.

Recently, J.P. Morgan analyst Phil Gresh reiterated a Hold rating on the stock. The analyst, however, lowered the price target from $128 to $111, which implies upside potential of 94.5% from current levels.

Consensus among analysts is a Strong Buy based on 19 Buys and 1 Hold. The average ConocoPhillips price target of $78.35 implies upside potential of 37.3% from current levels.

ConocoPhillips scores a 9 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations. Shares have gained 66.1% over the past year.