We are maintaining our long-term Neutral recommendation on
Royal Dutch Shell plc
), owing to its inventory of strong growth projects, restructuring
initiatives and healthy financial profile. These positives are
somewhat negated by the its high exposure to the downstream
business, major natural gas focus, as well as lofty capital
spending, which may result in reduced returns going forward.
ROYAL DTCH SH-A (RDS.A): Free Stock Analysis
EXXON MOBIL CRP (XOM): Free Stock Analysis
To read this article on Zacks.com click here.
Based in Netherlands, Shell 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.
The company's diversified portfolio of global energy businesses
offer attractive long-term growth opportunities, while a number of
development projects and increased capital expenditures are
expected to aid in volume growth over the long haul.
Shell has outlined plans to boost its focus on the more lucrative
and well performing 'upstream' exploration and production end of
the business. The group expects annual worldwide production to
increase some 25% by 2017-2018 (from 2011 levels), driven by a new
wave of project startups.
Shell's targeted output advance represents one of the most
ambitious growth programs in the sector, which will be achieved
primarily by new projects coming on-line in Qatar, Australia and
North America. The company is currently assessing more than 60 new
projects and options that should guarantee robust upstream growth
Additionally, in view of the bearish outlook for the marketing and
refining operations, Shell decided to streamline its downstream
portfolio. The company has been looking to improve its performance
and remain competitive in this difficult environment by embarking
on aggressive cost reduction steps, exiting unprofitable markets
and streamlining the organization.
Shell is also a frontrunner in the liquefied natural gas (LNG) and
Gas-to-Liquids (GtL) technologies spaces, backed by years of
research and development, extensive expertise, multi-billion dollar
investments and cordial relationships with partners/governments
However, being one of the largest integrated oil and gas companies
in the world, Shell is particularly susceptible to the downside
risk from the current turmoil in the global economy.
Shell is the most gas-focused among the major companies in the
sector, with 48% of its current production from the commodity.
Given natural gas weak fundamentals, this remains a key area of
concern, in our view.
Moreover, Shell projects an investment of some $30 billion in 2012,
quite high by industry standards. This is expected to substantially
improve the group's leverage and deteriorate its credit metrics
during the current downturn. Additionally, the increasing capital
intensity of its operations may result in reduced returns going
Shell - the second biggest oil company by market capitalization
) - currently retains a Zacks #3 Rank that translates into a
short-term Hold rating.