WFS---COP: To Buy Shell's Permian Acreage for $9.5B Our Call COP continues its boldness streak with another major acquisition in the Permian. We reiterate our Overweight rating and $72 price target. Market speculation over the last several months indicated Shell would be disposing of its Permian acreage with a valuation expectation of $10B. As one of the few companies that could/would fund such a transaction, we believe COP's share price has lagged as investors may have feared deal risk.
Utilizing an expected $4B of cash on hand and the balance sheet to fund the $9.5B headline acquisition price supports the company's stated views of accretion. With the announcement of a sub-$10B price, no change in COP's long-term debt reduction goals, doubled disposition target, $10B of incremental cash distributions (15% increase) to shareholders by 2030 and improved ESG metrics, we expect investors to be pleased.
Transaction details and comps. The $9.5B cash transaction includes ~225,000 net acres and over 600 miles of operated crude, gas and water pipelines and infrastructure. Estimated 2022 production is roughly 200mboed. Assuming approximately $30,000/ boed of estimated production of 200mboed and 225,000 net acres implies transaction costs of $15,600 per net acre.
COP estimates 2022E EBITDA of 3.7x and FCF yield of 20% assuming a $50/bbl WTI price. Versus the June 30, 2021 one-year plan, COP expects incremental CFFO of $20B with FCF of $10B. This includes expected 2022 CFFO of $2.6B with FCF of $1.9B from the acquired assets. Excess cash flow will likely be directed towards increased shareholder distributions.