Energy major Royal Dutch Shell Plc. (RDS.A) announced the start-up of its Nigeria-based Gbaran-Ubie project following five years of work. The development, operated by Royal Dutch Shell’s Nigerian subsidiary, is located in the country’s southern delta and is designed to produce 1 billion cubic feet of gas (about 25% of overall production now in Nigeria) and 70,000 barrels of oil per day at its peak.
Encompassing five oil and gas fields spread over a 650 square kilometer (250 square mile) area of Bayelsa and Rivers states, the Gbaran-Ubie project is expected to provide liquefied natural gas and oil for export. Additionally, it will help boost gas-fired electricity generation for the power-starved nation. As of now, the project is churning out gas from the first two out of a planned 33 wells.
Despite being one of the world’s largest oil producers and a top supplier of crude oil to the U.S., Nigeria is saddled with chronic power shortages and fails to provide power to its 150 million residents. The country sorely lacks electricity and fuel due to the poor condition of its domestic refineries, which have been hampered by corruption.
Royal Dutch Shell discovered oil in Nigeria 50 years ago and is currently the country’s largest oil producer. However, since the last few years, the company has come under a string of attacks from Nigeria’s main militant group, The Movement for the Emancipation of the Niger Delta (MEND). The West African country has struggled to control MEND’s hostilities, which started attacking Nigeria’s oil industry and kidnapping oil workers four years ago. Royal Dutch Shell says that between 20,000 and 100,000 barrels of crude are stolen daily in Nigeria.
The Hague-based energy behemoth, which accounts for around half of Nigeria’s oil output, believes that volumes from the Gbaran-Ubie field will help it to partially revive its Nigerian production.
Royal Dutch Shell is currently rated as Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our long-term ‘Neutral’ recommendation (6+ months time period).
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