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Shell Plans to Divest Gulf of Mexico Assets for $425M

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Integrated energy major, Royal Dutch Shell plc has entered into an agreement to sell some of its properties in the Gulf of Mexico to Houston-based independent energy company, EnVen Energy Corp. The transaction is expected to close in October and is estimated to generate $425 million in cash, plus royalty interests.

Per the deal, Shell plans to divest 100% of its Brutus/Glider assets, which includes Green Canyon blocks 114, 158, 202, and 248. These assets also include the Brutus tension leg platform (TLP), the Glider subsea production system, and the oil and gas lateral pipelines that are used to evacuate production from the TLP. The Brutus/Glider asset sale has a combined current production estimate of about 25,000 barrels of oil equivalent per day, which is equivalent to 5.8% of Shell’s Gulf of Mexico production.

The Brutus/Glider asset sale is in line with Shell’s global divestment plans to shed assets worth $6–$8 billion this year. The company will make the divestitures to generate proceeds to pay for the BG Group merger and to improve its profitability amid depressing oil prices.

In Feb 2016, Shell – the biggest oil producer in the U.S. Gulf – merged with British energy company, BG Group, in a deal worth $50 billion. This deal forced Shell to sharply increase its borrowing in order to maintain its dividend policy at a time of low oil prices. Hence, the Anglo-Dutch company plans to divest some $30 billion worth of assets over the next three years or so to help pay for its BG Group merger.

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Headquartered in The 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 in power generation and renewable energy.

Shell currently carries a Zacks Rank #3 (Hold), implying that it will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the broader energy sector are Devon Energy Corporation (DVN - Free Report) , China Petroleum & Chemical Corp. and Enbridge Energy Partners, L.P. .  All these stocks sport a Zacks Rank #1 (Strong Buy).

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