Shell is expanding its oil and gas portfolio in the Americas, agreeing to acquire stakes in two exploration prospects operated by rival BP as both energy majors place greater emphasis on long-term upstream growth.
Shell Offshore, a subsidiary of British oil and gas major Shell, said Wednesday it would acquire a 30% interest in BP-operated Conifer, an exploration prospect in the Gulf of Mexico.
In a separate announcement, BP said Shell would also acquire a 50% stake in the Tupinamba exploration block in Brazil’s Santos Basin. BP will retain a 70% interest in Conifer and a 50% interest in Tupinamba and will remain operator of both projects.
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The transactions highlight the growing importance of high-quality oil and gas resources to the strategies of both companies after years of substantial investment in renewable energy, low-carbon businesses and the broader energy transition.
Shell and BP have both been under pressure from investors to improve returns and capital discipline after committing billions of dollars to lower-carbon businesses. The renewed focus on upstream assets reflects a broader shift among major Western oil companies toward projects capable of generating strong cash flows while maintaining relatively disciplined capital spending.
The Gulf of Mexico remains an important part of the U.S. energy system. The region accounts for roughly 15% of U.S. crude oil production and contains extensive offshore infrastructure, pipelines, and processing facilities that can support new developments and reduce some of the infrastructure risks associated with frontier exploration.
The Conifer transaction consequently gives Shell exposure to additional potential resources in a mature but highly productive offshore basin, while allowing BP to retain operatorship and the majority interest. The deal also expands Shell’s exposure to Brazil, one of the world’s most strategically important deepwater oil provinces.
Tupinamba is located in the Santos Basin, which contains several of Brazil’s prolific pre-salt oil developments. Brazil’s deepwater fields have become increasingly important to international oil companies because of their large resource potential and comparatively competitive production economics.
BP has been seeking to strengthen its Brazilian portfolio following the Bumerangue discovery, which the company described last year as its biggest discovery in 25 years. BP said earlier this year that Bumerangue contains an estimated 8 billion barrels of liquids, potentially making the discovery a major long-term contributor to the company’s upstream business.
The scale of Bumerangue also illustrates why Brazil is becoming central to BP’s upstream strategy. Large offshore discoveries can provide decades of production and help companies replace declining output from mature fields elsewhere.
Acquiring a stake in Tupinamba provides exposure for Shell to that growth without taking on full operatorship. BP, meanwhile, can bring in a major partner to share exploration costs and risks while retaining operational control.
The transactions come as the economics of the global energy transition are being reassessed by major oil companies. While demand for renewable energy and lower-carbon technologies continues to grow, oil and gas remain critical to the global energy system, particularly for transportation, petrochemicals, industrial activity and emerging economies.
That development has encouraged some European oil majors to become more selective about the pace of their transition investments. Rather than abandoning lower-carbon businesses, companies such as Shell and BP are increasingly attempting to balance them against conventional projects capable of delivering near- and medium-term returns.
The approach marks a significant change from the period when European energy majors were among the industry’s most aggressive investors in renewables and other transition businesses. Investors have demanded that those investments generate competitive returns, while oil and gas projects have benefited from stronger commodity prices and concerns about energy security.
The BP-Shell transactions also demonstrate the value of partnerships in offshore exploration. Deepwater projects require substantial upfront capital and carry considerable geological and development risks. Sharing ownership allows companies to diversify those risks while retaining access to potentially large resources.
Remaining operator of both Conifer and Tupinamba means BP can maintain control over exploration and development decisions while reducing its financial exposure. For Shell, minority stakes provide access to potentially attractive resources without requiring the company to shoulder the full cost and operational responsibility.
The deals therefore fit a broader strategy among international oil companies: concentrate capital on the most competitive oil and gas assets, pursue large discoveries in established producing regions and use partnerships to manage risk.
With Brazil’s offshore resources and the Gulf of Mexico’s established infrastructure both offering long-term production potential, the latest transactions indicate that upstream oil and gas will remain a central component of the strategies of Shell and BP even as they continue to navigate pressure to reduce emissions and invest in the energy transition.