Royal Dutch Shell PLC (NYSE: RDS-A) decided it's time to clean out its global energy portfolio. The oil giant could unload as much as $30 billion in assets as part of the purge. Meanwhile, Chevron Corporation (CVX 0.53%) is said to be doing some spring cleaning of its own as it's looking for buyers for pipeline assets worth about a billion dollars.
Shell game
Shell needs to make some changes after it warned that its profits would be significantly lower than analysts were expecting. But the company has been hinting for a while that it would be paring back its portfolio. Earlier this year Shell announced it was exiting several U.S. shale basins after returns failed to meet its expectations.
Because of this the company is looking for buyers for its Mississippian Lime assets in Kansas and Oklahoma as well as its Eagle Ford Shale assets in Texas. While Shell couldn't make much money from drilling in either play, these are just the type of plays that can fuel growth for a U.S. independent like Marathon Oil Corporation (MRO -0.95%). That's why one analyst sees these assets having enough value to net Shell $3 billion and $2.1 billion, respectively.
Global energy giants like Shell have found that these tight oil plays just don't move the needle for a company of its size. It can't drive its costs down like Marathon Oil can to really archive the returns it's looking to produce from a play like the Eagle Ford. Marathon Oil, on the other hand, has worked hard to improve its operations in the play with each well drilled. This is yielding improved returns as its initial production rate is up 45% since 2011. Because of this Marathon Oil is able to accelerate the value of its position by increasing the pace of drilling. For 2014, the company is boosting its activity by 20%, which should fuel 30-35% annual Eagle Ford production growth over the next five years. That's needle moving growth that Shell simply cannot match.
Selling out
Chevron, on the other hand, is looking to clean up its portfolio by selling about a billion dollars in oil and gas pipelines according to Bloomberg. That's just a drop in the bucket for a company planning to spend nearly $40 billion on capital projects this year.
What's interesting is that according to the Bloomberg article, most of the assets that Chevron is unloading would best fit within a master limited partnership structure. This is another example where Chevron is taking a much different approach than many of its peers in how it manages its growth. Not only is it joining Shell by fueling growth outside of the American energy boom, but it is reluctant to join the American spinoff and MLP bandwagon.
Marathon Oil, on the other hand, did just that when it spun off its refining, logistics and marketing arm into Marathon Petroleum Corp (MPC -0.36%). Not too long after that Marathon Petroleum created a master limited partnership, MPLX LP (MPLX 0.80%), to own some of its midstream assets. It's a strategy that Chevron doesn't appear to have any intentions of pursuing at the moment. Instead, it has chosen to just sell its assets to other MLPs for cash.
Investor takeaway
What all this means is that this could be a great time for independents and MLPs to do some shopping as Chevron and Shell do some spring portfolio cleaning. There are countless examples of assets were simply a better fit in the hands of a company that could operate it to its full potential. That's why investors should keep their eyes peeled to see which companies end up with the assets being purged from big oil as those companies could end up getting some real bargains that really do fuel needle moving growth.