Back to top

Analyst Blog

Integrated energy giant, Royal Dutch Shell plc (RDS.A - Analyst Report) along with consortium of oil producing firms, has entered into a 35-year production sharing agreement (PSA). The other companies include Brazilian state-run energy giant, Petroleo Brasileiro SA or Petrobras (PBR - Analyst Report), France-based TOTAL SA (TOT - Analyst Report), Chinese offshore giant CNOOC Ltd. (CEO - Analyst Report) and state-owned China National Petroleum Company (“CNPC”). The companies are expected to ink the contract by Nov 2013.

Per the deal, the five firms will start drilling the offshore Brazil-based Libra deepwater field, one of the largest oilfields in the world. Royal Dutch Shell expects the minimum work plan of the project to be completed by the end of 2017.

Agencia Nacional do Petroleo (ANP), a governmental regulatory body of Brazil, estimates roughly 8 to 12 billion barrels of oil in the recoverable resources of the Libra pre-salt oil field. Moreover, the field might produce roughly 1.4 million barrels of oil per day during peak production, subject to some appraisal work.

Petrobras, as an operator of the development, will own a 40% ownership in the consortium. Also, Royal Dutch Shell will acquire a 20% stake in the development for $280 million. Of the rest, TOTAL will hold 20%, while CNOOC and CNPC will have 10% each.

Royal Dutch Shell’s worldwide operations involve various activities related to oil and natural gas, chemicals, power generation, renewable energy resources, and other energy related businesses. Royal Dutch Shell divides its operations into three major segments: Upstream, Downstream, and Corporate.

In terms of assets, Royal Dutch Shell owns a strong and diversified portfolio of global energy businesses that offer attractive growth opportunities.

However, Royal Dutch Shell’s relatively heavy downstream exposure leaves it less diversified than its integrated peers. As such, the group’s results remain greatly exposed to refining/marketing margins.

Royal Dutch Shell currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.

Please login to Zacks.com or register to post a comment.