Shell to Invest in China

One of the largest oil and gas companies, Royal Dutch Shell plc ( RDS.A - Analyst Report ) plans to make an annual investment of $1 billion in its upstream business in China to cater to the country’s growing natural gas demand.

Currently, Shell operates two gas blocks in southwest Sichuan Province, Jinqiu and Fushun-Yongchuan. Both are in partnership with China National Petroleum Corporation (CNPC).

In the Jinqui block, the company has drilled 13 out of 21 wells and plans to complete the rest by April 2013. Daily production volume in the block amounts to 110,000 cubic meters. Drilling at Fushun-Yongchuan block is expected to commence by 2012 end or early 2013 depending upon its commercial development.

Shell also announced its plan to make further investments of $20 billion worldwide by 2015 in natural gas projects.

Royal Dutch Shell plc owns one of the largest integrated oil and gas businesses in the world. The group has operations all over the world and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources, and other energy related businesses.

We believe that Shell’s strong and diversified portfolio of development projects offer lucrative long-term opportunities to the company and will continue to boost revenue and earnings growth over the next few quarters.

However, the company is particularly susceptible to its high exposure to the downstream business, its natural gas focus, as well as lofty capital spending, which may result in reduced returns going forward.

Royal Dutch Shell – Europe's most valued oil company, ahead of BP plc ( BP - Analyst Report ) and Total SA ( TOT - Analyst Report ) currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.