Shell to Divest its Stake in SADAF Joint Venture for $820M

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Integrated energy major Royal Dutch Shell plc RDS.A recently signed a contract to offload the remaining 50% of its joint venture with leading chemical manufacturing company Saudi Basic Industries Corp.

According to this deal, Saudi Basic Industries will acquire Shell's 50% share in the petrochemicals joint venture - SADAF - for $820 million. This joint venture, which is located in Jubail, includes six world-scale petrochemical plants with a total output of more than 4 million metric tons per year. The transaction is subject to regulatory approvals and is expected to be completed by year-end 2017.

This deal, which was due to expire in 2020, came to an end earlier than planned because Shell intends to shift its focus to downstream activities, where it is more competitive. Prior to this divestment, Shell disposed off its Malaysian oil refining company and Australian aviation business due to the same reasons.

Headquartered in Hague, the Netherlands, Shell is one of the largest integrated oil and gas companies in the world. It explores for and extracts crude oil, natural gas and natural gas liquids. It has interests in chemicals as well as power generation and renewable energy. The company has been present in Gabon for more than 50 years and operates the Rabi Kounga and Gamba fields in the country.

Year to date, the Zacks categorized International Oil and Gas Integrated industry has registered an impressive growth of 21.6%. However, the Shell stock has outperformed the industry by gaining 24.6%.

The company's acquisition of BG Group, the third-largest energy player in the U.K., has improved its prospects even more. Shell will now be able to boost its oil and gas reserves by almost 25% and will benefit from BG Group's big projects worldwide. We believe that the recently struck deal to sell some of its Gulf of Mexico assets is an important step toward executing its plan to divest $6-$8 billion of properties this year and maintain its generous dividend policy.

Royal Dutch Shell PLC Price and Consensus

Royal Dutch Shell PLC Price and Consensus | Royal Dutch Shell PLC Quote

However, the difficult operating environment - continued weakness in commodity prices and depressed refining margins - keeps us on the sidelines.

As a result, Shell currently carries a Zacks Rank #3 (Hold), which implies that the stock will outperform the broader U.S. equity market over the next one to three months.

Some better-ranked players from the broader energy sector include Braskem S.A. (BAK) , McDermott International, Inc. MDR and Suncor Energy Inc. SU . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

In the last four quarters, Braskem posted an average positive earnings surprise of 105.5%.

In the last quarter, McDermott posted a positive earnings surprise of 250.00%.

In the last quarter, Suncor posted a positive earnings surprise of 300.00%.

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Suncor Energy Inc. (SU): Free Stock Analysis Report

Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report

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

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

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