Shell, Gazprom JV Starts Drilling - Analyst Blog

By Zacks Equity Research,

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Leading integrated energy firm Royal Dutch Shell plc ( RDS.A ) and partner, Russia based oil firm Gazprom Neft have started their pilot drilling program under the joint venture (JV), Salym Petroleum Development.

The JV is drilling the first horizontal appraisal well, in Upper Salym, using multifrac technology. It is part of the five appraisal wells that are to be drilled in 2014-15 to evaluate the potential of the Bazhenov formation in the Salym fields.   

This pilot program follows the drilling of three vertical exploration wells by the JV over the last three years in order to lower uncertainties in developing the Bazhenov formation. Also, to evaluate the production potential of the formation, the JV has tested two wells.

U.K.-based Shell is the largest oil company in Europe and has worldwide operations. It is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources, and other energy related businesses.

Though a healthy dividend yield and reasonably cheap valuation are positives for Shell, we are concerned about its high exposure to the downstream business, which leaves it less diversified than its integrated peers. As such, the group's results remain greatly exposed to refining/marketing margins. Moreover, given natural gas' volatile fundamentals, Shell's gas focused nature could pose a problem. Also worth noticing is the company's lofty capital spending.

Royal Dutch Shell currently holds a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the energy sector such as CNOOC Ltd. ( CEO ), Linn Co, LLC ( LNCO ) and YPF S.A. ( YPF ). All these stocks currently sport a Zacks Rank #1 (Strong Buy).

CNOOC LTD ADR (CEO): Free Stock Analysis Report

LINN CO LLC (LNCO): Free Stock Analysis Report

ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report

YPF SA D CV ADR (YPF): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: CEO , LNCO , RDS.A , YPF

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