ConocoPhillips Grows in the Permian With Cheap Shell Deal, Bumps Dividend 7%

For the second time in a year, ConocoPhillips is enlarging its holdings in the Permian, with the acquisition of Shell’s shale assets there in a $9.5 billion all-cash transaction expected to close in the fourth quarter of 2021. Conoco is getting a good deal. The $42,000 per net acre places it slightly above recent deals in the region. Meanwhile, adjusting for production value assuming $30,000 per barrel of oil equivalent, the net acre price of $15,600 is higher than its Concho acquisition at approximately $10,000 per net acre. However, the higher valuation accounts for the maturity and high portion of proved developed reserves of the position. Compared with Rystad’s estimated value of $14.7 billion, assuming $60/bbl, it’s a steal. We maintain our fair value estimate and narrow moat rating.