Shell plc SHEL narrowed down its potential bidders for the southern North Sea gas fields to three. Perenco SA, Ithaca Energy Plc and Viaro Energy Ltd. have each submitted bids for a coveted package of U.K. assets. This package includes key assets such as the Leman Alpha hub, the Clipper field and the Bacton gas terminal. While the actual valuation is subject to speculation, sources suggest that it could range between $600 million and $800 million.
Why Shell is selling its southern North Sea gas fields?
The sale followed Shell’s decision to reduce its exposure to the North Sea oil and gas industry. The company has been under pressure from investors to divest its fossil fuel assets and focus on renewable energy.
The Final Contenders: Bidders for Southern North Sea Gas Fields
The three formidable contenders vying for the southern North Sea gas fields are Perenco SA, Ithaca Energy Plc and the relative newcomer Viaro Energy Ltd. These entities have presented bids for a comprehensive package of U.K. assets.
The Leman Alpha hub is a major gas processing facility in the Southern North Sea. It receives gas from several fields in the area and exports it to the U.K. mainland.
The Clipper field is a gas field located about 100 kilometers off the coast of England. It has been producing gas since 1996 and has estimated reserves of about 1.5 trillion cubic feet.
The Bacton gas terminal is a major gas import and export terminal in the United Kingdom. It is located in Norfolk, England.
Changing Ownership Landscape in the North Sea
The changing ownership landscape of North Sea fields reflects the broader evolution of the energy industry. Major oil companies have progressively withdrawn from aging basins, creating opportunities for private equity-backed firms, smaller exploration and production companies, and emerging players like Viaro Energy.
The Impact of Windfall Tax on Profitability
The sale of Shell's Southern North Sea assets is likely to be closely watched by the U.K. government. The government has been under pressure to increase domestic energy production in response to the war in Ukraine. However, the windfall tax on oil and gas producers has made some of these assets less attractive.
While these contenders bring renewed investment potential to the region, the energy landscape has been influenced by the U.K. government's imposition of windfall tax on producers. This move has introduced a layer of complexity to the profitability equation, prompting industry players to assess their strategies and financial forecasts in light of these changing fiscal dynamics.
Anticipated Results and Future Steps
As anticipation mounts, the industry eagerly awaits the forthcoming announcement of Shell's final decision. The results of the sale process are expected to be revealed in the coming weeks, shedding light on which contender will secure the rights to the Southern North Sea gas fields. This decision holds the potential to reshape the energy industry's trajectory in the region.
The aforementioned deal is a significant development in the U.K. oil and gas industry, and it is likely to have a major impact on the future of the industry. However, it is yet to be seen who will be the successful bidder.
Zacks Rank and Key Picks
Currently, SHEL carries a Zacks Rank #3 (Hold).
Some better-ranked stocks for investors interested in the energy sector are CVR Energy CVI, sporting a Zacks Rank #1 (Strong Buy), and Evolution Petroleum EPM and Archrock AROC, both carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
CVR Energy (CVI) is valued at around $3.54 billion. In the past year, its shares have risen 5.1%.
CVI currently pays a dividend of $2 per share, or 5.68% on an annual basis. Its payout ratio currently sits at 30% of earnings.
Evolution Petroleum is worth approximately $322.04 million. EPM currently pays a dividend of 48 cents per share, or 4.96% on an annual basis.
The company currently has a forward P/E ratio of 8.96. In comparison, its industry has an average forward P/E of 15.40, which means EPM is trading at a discount to the group.
Archrock is valued at around $1.98 billion. It delivered an average earnings surprise of 15.08% for the last four quarters and its current dividend yield is 4.89%.
Archrock is a provider of natural gas contract compression services and aftermarket services of compression equipment.
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