Exclusive: Shell plans to withdraw from California joint venture with Exxon Mobil

Authors: Jessica Resnick-Ault, Arathy S Nair and Shariq Khan

(Reuters)-Royal Dutch Shell (LON:) Plc plans to combine its California-based oil and gas production joint venture Aera with Exxon Mobil Corp (NYSE:), four people familiar with the negotiations told Reuters.

Shell divested a large number of carbon-intensive assets this year, sold its Washington State refinery to Holly Frontier Corp, and sold its shares in the Houston area refining joint venture to Petroleos Mexicanos as it shifted new investments to renewable energy and electricity.

According to Reuters previously reported, the company is also considering selling its assets in the Permian Basin in Texas.

Aera produces approximately 125,000 barrels of oil and 32 million cubic feet per day, accounting for approximately 25% of the state’s oil and gas production.

People familiar with the matter said that Shell has notified Exxon Mobil of its plan to withdraw from the joint venture and requested anonymity because the talks were conducted in private. A Shell spokesperson declined to comment on the grounds of company policy.

The joint venture is headquartered in Bakersfield, California, and mainly produces in the San Joaquin Valley. Shell has previously sold all of its California refining operations, some of which have pipeline connections to oil fields.

Although California has introduced the most stringent state-level greenhouse gas emission regulations, it still produces approximately 360,000 barrels of oil per day. Last year, an executive order required all new cars and buses sold in California to be zero-emission vehicles by 2035, and the state reduced the dirtiest form of oil extraction.

With the lifting of travel restrictions for the COVID-19 pandemic, demand rebounded, and oil prices have soared this year by more than 50%. Rising prices have prompted many oil producers to sell assets. Investors demanded to reduce investment in fossil fuels to curb global climate change brought about by carbon emissions, which intensified the sell-off.

Shell and other European-headquartered oil producers, such as BP (NYSE:) Plc and TotalEnergies, have pledged to reduce emissions by increasing investment in renewable energy and divest some of their oil and gas shares.

Shell, one of the world’s largest oil companies, said this year that its goal is to reduce the carbon intensity of its products by at least 45% by 2035 and 100% by 2050, compared to 2016 levels. A Dutch court ruled that Shell’s efforts were not enough and ordered it to reduce emissions by 45% from 2019 levels by 2030.

There may be more transactions this year Chevron (New York Stock Exchange ticker:) Hope to divest about 1 billion U.S. dollars of assets in the Permian Basin of Texas and New Mexico. According to industry experts, Exxon Mobil, Occidental Petroleum (NYSE:) and other companies are seeking to divest unwanted assets and raise cash.