Earlier today, Royal Dutch Shell PLC (RDS.A), one of the world’s largest integrated oil and gas companies, gained approval from the Jordanian Parliament to explore oil from the country’s vast shale deposits. Jordan’s top energy resources regulatory agency — the Natural Resources Authority (NRA) — said that lawmakers endorsed the multi-billion dollar production sharing agreement that could churn oil by thousands of barrels.
In May this year, the Jordan government approved the project, under which the Anglo-Dutch company will explore and extract oil shale reserves from an area encompassing 22,000 square kilometers in the central, southern and north-western regions of the kingdom.
Shell is expected to spend around $340 million on exploration, assessment and designs of the project and pay some $150 million to the Jordanian government over the three stages of the exploration, which entails the firm’s patented ‘in situ conversion process,’ under which the ground is heated over several years to extract shale in oil form. The oil supermajor is expected to take a call on the project’s viability at the end of each of the first two stages.
If feasible, the project could eventually cost several billion dollars and will start producing commercially by late 2020s. Shell will begin drilling boreholes in the concession area within the next nine months.
Jordan is thought to contain some 40 billion metric tons of proven oil shale reserves, a figure which may be doubled. Oil shale refers to organic-rich fine-grained sedimentary rocks from which oil can be obtained by heating.
While we believe that Shell should benefit from this agreement in the long-term, as of now, the group does not compare favorably with its super-major peers, Exxon (XOM) and Chevron (CVX), in terms of reserve lives, upstream growth, costs and financial returns. As such, we prefer to maintain our Hold recommendation on the stock.
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