Anglo Dutch oil giant Royal Dutch Shell PLCRDS.A recently signed a deal to divest its stake in a natural gas fieldin New Zealand to the local venture partner, Todd Energy. For Shell, the deal is part of its portfolio optimization strategy and the $30 billion divestment program for 2016-2018.
Per the deal, Shell will offload 50% interest in the onshore Kapuni oil and gas field in the Taranaki region of New Zealand. Notably, this is the second largest gas field of the country, which was discovered in 1959 and went into full production in 1969 as a joint venture between Shell and Todd Energy.
The agreement will also involve Shell taking over the remaining 50% interest in the Shell Todd Oil Services, increasing its holding to 100%. Shell Todd Oil Services is the oil field operating company which had been a joint venture between Shell and Todd Energy since 1955.
The financial terms of the deal remain undisclosed as yet. Subject to regulatory clearance, the deal is likely to take some months to close.
Post the execution of the deal, around 50 employees working on the Kapuni field will become part of Todd Energy, as it will take over as the chief operator of the gas field.
How Will Shell Benefit from the Deal?
The move is in line with Shell's strategy to exit from New Zealand. The company had put its interests in New Zealand under review in Dec 2015 after the slump in the oil industry. It is likely to explore divestment options for its remaining assets in the country which includes 84% interest in the Maui field and a 48% stake in the Pohokura field.
The deal also takes the $30 billion divestment plans of Shell forward. The company had sold assets worth $5 billion last year. In 2017 the company divested assets worth more than $15 billion. The deal provides the company some uplift in its drive to decrease debt following the acquisition of BG Group for $47 billion. The divestment is expected to reduce the company's cost, enhance cash flow and return to capital.
The move is also in sync with the company's strategy to upgrade and streamline its portfolio amid an industry downturn. Shell seeks tosimplify the operational structure as it looks to offloading its assets.
How Will Todd Energy Benefit from the Deal?
The increase of stake in the Kapuni gas field is likely to strengthen Todd Energy's commitment to natural gas production in Taranaki region. The deal is consistent with Todd Energy's concentration on the development of New Zealand's onshore natural gas resources.
Zacks Rank & Key Picks
Headquartered in Netherlands, Shell is one of the largest integrated energy companies and is engaged in production, refining, distribution and marketing of oil and natural gas.
Shell's shares rallied almost 6.5% over the prior one year, underperforming the Zacks categorized Oil & Gas-International Integrated industry's gain of 9%.
Shell has a dismal earnings surprise history. The company posted negative earnings surprise in three of the four trailing quarters, with the average being 18.9%.
The company currently carries a Zacks Rank #4 (Sell).
Better-ranked players in the same industry include OMV AG OMVJF , Repsol, S.A. REPYY and Eni SpA E . While OMV AG sports a Zacks Rank #1 (Strong Buy), Repsol and Eni carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
OMV is expected to deliver year-over-year growth of 2.35% in earnings in 2018.
Repsol reported average positive earnings surprise of 46.34% in the trailing four quarters.
Eni is expected to generate a year-over-year growth of 762% in its earnings in 2017.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>