Royal Dutch Shell plc (RDS.A) has entered into an agreement with Chilean business conglomerate Quinenco for the sale of a majority of its downstream business located in that country. The total consideration of the deal has been settled at approximately $614 million. Both companies await the final approval for the completion of the proposed deal.
The assets to be disposed include Shell’s existing Retail, Commercial Fuels, Bitumen and Chemicals businesses, along with related supply and distribution infrastructure in Chile. However, the retail network comprising 300 sites will retain the Shell brand via a trademark license agreement.
In addition to the above deal, Quinenco will act as a Macro Distributor and market, sell and supply Shell branded lubricants in Chile. The former will also operate as a delivery service provider, distributing Shell Marine Products to customers over there.
This divestment forms a part of Shell’s strategy to narrow its downstream asset base and concentrate on the more cost effective and high return generating exploration and production end of the business.
The Hague, Netherlands-based Shell is a global energy company engaged in oil and gas exploration, production, refining and marketing with operations and assets across the globe. Given Shell’s strong operational and production efficiency as well as contribution from numerous growth projects, we expect it to continue the revenue and earnings growth momentum over the next few quarters.
We expect the company to benefit from the rise in oil prices, operational and production efficiency as well as the strengthening economy in the near-to-medium term. We believe that Shell offers meaningful long-term upside potential and maintain an Outperform recommendation. Shell faces stiff competition from peers such as BP plc (BP) and Exxon Mobil Corp. (XOM).
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