The Canadian arm of
Royal Dutch Shell Plc
(
RDS.A
) stepped into a farm-out agreement with Toronto Stock Exchange
listed MGM Energy Corporation.
Per the contract, the former will extend funding for the
drilling and completion of up to two wells in the Canol shale oil
play of Central Mackenzie Valley. In exchange of this, Shell Canada
Energy will receive 75% interest in the Exploration License
466B.
Located about 932.1 miles north of Calgary, the Mackenzie Valley
is one of Canada's largest oil fields that offers immense drilling
opportunities but remains vastly untapped.
Initially, Shell will invest for the drilling of the First
Earning Well and will hold a 37.5% stake in the well. Following the
completion of the exploration, Shell will have the option to fund
100% drilling expense to complete a horizontal well - the Second
Earning Well - and receive an additional 37.5% interest in
EL466B.
Canadian oil and gas firm, MGM Energy, will act as the operator
of the First Earning Well and the Second Earning Well. With the
completion of the exploration of the Second Earning Well, Shell
will control 75% interest and become the operator of the lands and
wells.
However, Shell has the option to call off the agreement, if MGM
Energy fails to get necessary permits and approvals to drill the
first well.
The First Earning Well is expected to be spud in the winter of
2012/13 or 2013/14, depending on the timely receipt of the
regulatory approvals.
We believe that Royal Dutch Shell is one of the largest
integrated energy firms in the world with a strong and diversified
portfolio of development projects that offer attractive long-term
opportunities.
The group - renowned for its success in bringing some of the
largest and technically challenging capital-intensive projects to
fruition - is expected to continue driving revenue and earnings
growth over the next few quarters.
However, the company remains susceptible to its exposure to oil
and gas price fluctuations, lofty capital spending and
international business risks. As such, we see Shell performing in
line with the broader market and maintain our Neutral
recommendation.
Shell, which operates in the industry with big players such as
BP plc
(
BP
) and
Total SA
(
TOT
), currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating.
BP PLC (BP): Free Stock Analysis Report
ROYAL DTCH SH-A (RDS.A): Free Stock Analysis
Report
TOTAL FINA SA (TOT): Free Stock Analysis Report
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