Energy major Royal Dutch Shell plc (RDS.A) has entered into an agreement with OXY USA Inc. – a unit of Los Angeles, California-based oil and gas production company Occidental Petroleum Corp. (OXY) – to sell some of its gas fields in South Texas for approximately $1.8 billion. The transaction, effective January 1, 2011, is expected to close in early 2011.
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.
The sale will see The Hague-based group offload all its gas-producing assets and associated properties in South Texas, which are predominately mature tight gas fields. However, recently acquired acreage in the Eagle Ford shale in Texas is not part of the transaction.
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. The proposed transaction will also help the company move toward achieving its goal of divesting $7 billion – $8 billion in assets worldwide in 2010 and 2011, as well as rationalize its North American portfolio following recent acquisitions in the region.
In this respect, the Anglo-Dutch behemoth has already decided 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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