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NorthAmOil                                   INVESTMENT                                          NorthAmOil


       Shell reportedly weighing Permian sale





        PERMIAN BASIN    ROYAL Dutch Shell is reportedly weighing a  were identified as the Gulf of Mexico, Brazil, the
                         sale of some or all of its assets in the US’ Permian  UK, Nigeria, Oman, Kazakhstan, Malaysia and
                         Basin.                               Brunei. Given Shell’s size, this illustrates how
                           Citing sources familiar with the mat-  its upstream focus is narrowing – and now it is
                         ter, Reuters reported on June 13 that the  possible that the number of core positions could
                         super-major was reviewing its holdings in the  shrink further still.
                         basin, which accounted for roughly 6% of its   Oil and gas production from Shell’s oper-
                         total oil and gas output last year. The assets  ations in the Permian – including both oper-
                         could be worth more than $10bn, according  ated and non-operated positions – averaged
                         to the sources.                      193,000 barrels of oil equivalent per day in 2020,
                           There is no guarantee that a deal will be struck  according to the company’s website. This marks
                         to sell the assets, the sources said. However, the  a decrease from about 250,000 boepd the previ-
                         news comes less than a month after Shell was  ous year.
                         ordered by a Dutch court to do more to cut its   Analysts suggested this week that Cono-
                         greenhouse gas (GHG) emissions. While the  coPhillips, Devon Energy, Chevron, EOG
                         company is planning to appeal against the rul-  Resources and some private equity firms could
                         ing, it has also said it would deepen its planned  be among the potential bidders for some or all of
                         emissions cuts, and against that backdrop, any  Shell’s Permian assets.
                         move to sell oil and gas assets would come as no   The super-major would not be the only major
                         great surprise.                      player in the Permian to shed assets there if it
                           Shell had previously identified the Permian as  ends up selling any of them. Last week, Occiden-
                         one of nine core regions in its energy transition  tal Petroleum agreed to sell some of its non-core
                         strategy to net-zero GHG emissions by 2050.  Permian holdings to Colgate Energy for $508mn
                         However, it has struggled with profitability in  as it works to reduce its debt load. (See NorthAm-
                         the basin. The company’s other core positions  Oil Week 23)™



       Northern Oil and Gas




       bulks up in Permian





        PERMIAN BASIN    US-BASED Northern Oil and Gas announced  including the Wolfcamp A, Wolfcamp B and the
                         this week that it had entered into three definitive  first, second and third Bone Spring formations.
                         agreements to acquire non-operated interests   “These assets represent the trifecta,” com-
                         across roughly 2,900 net acres (12 square km)  mented Northern’s chief operating officer,
                         in New Mexico’s portion of the Permian Basin.  Adam Dirlam. “We are acquiring high-return
                         The assets are being acquired for a combined  core properties with top operators, assets with
                         purchase price of $102.2mn.          significant inventory and growth potential, and
                           Northern said in a June 16 statement that the  engaging in a transaction expected to meaning-
                         assets are primarily operated by Mewbourne  fully impact Northern’s free cash flow profile.”
                         Oil, Colgate Energy, ConocoPhillips and EOG   The company expects to fund the acquisition
                         Resources. In May, combined production from  through a combination of a common equity
                         the assets was roughly 2,200 barrels of oil equiv-  offering and – if necessary – cash on hand, or
                         alent per day, with oil comprising 66%. The com-  borrowings under its senior secured credit
                         pany anticipates output to average 3,700 boepd  facility. It said a portion of the transaction had
                         in the second half of 2021. Over the next few  already closed, with the remainder due to close
                         years, Northern aims to grow production from  in the third quarter of this year. It also updated its
                         the assets to roughly 6,500 boepd, assuming cur-  capital expenditure guidance for 2021 to $215-
                         rent strip prices.                   270mn, from $200-250mn previously.
                           Under this development scenario, Northern   The acquisition comes as other companies are
                         anticipates the assets generating over $100mn  also buying Permian assets. Last week, Occiden-
                         of cumulative free cash flow (FCF) between this  tal Petroleum agreed to sell some of its non-core
                         year and 2025.                       Permian holdings to Colgate for $508mn. Days
                           The properties include5.3 net producing  later, Reuters reported that Royal Dutch Shell
                         wells, 5.0 net wells in process and an additional  was weighing a sale of some or all of its Permian
                         23.1 net undrilled locations ascribed to zones  assets. (See previous story)™



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