Energy major Royal Dutch Shell plc’s (RDS.A) U.S. unit – Shell Oil Co. – is planning to sell its South Texas gas fields, according to a report by Wall Street Journal (“WSJ”). The company expects to pocket around $1 billion from the transaction, the report added, citing people close to the matter.
The prospective buyer of The Hague-based group’s natural gas assets is most likely to be an energy-focused private-equity firm or master limited partnership, the newspaper reported in its online edition. Shell has been active in South Texas since 1953 and currently produces approximately 210 million cubic feet of natural gas per day from more than 400 wells across three counties – Zapata, Hidalgo and Starr.
We see the South Texas deal as part of Shell’s efforts to free up funds − improving its balance sheet in the process − and focus instead on its core projects to improve capital efficiency. As part of its portfolio restructuring effort, the Anglo-Dutch behemoth agreed to sell its interest in six Gulf of Mexico oil and gas fields to W&T Energy VI, LLC – a unit of American group W&T Offshore Inc. (WTI) – for $450 million in early November. This was followed by the company’s sale of almost a third of its 34% interest in Australian energy firm Woodside Petroleum Ltd. for about $3.3 billion.
Royal Dutch Shell – Europe’s largest oil company by market value and ahead of BP plc (BP) and Total SA (TOT) – owns one of the largest integrated oil and gas businesses in the world. The group has operations all over the world and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources and other energy-related businesses.
Royal Dutch Shell ADRs currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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