Shell to Buy Repsol's LNG Property

Integrated energy firm Royal Dutch Shell plc (RDS.A - Analyst Report) has agreed to buy certain liquefied natural gas (LNG) properties from Repsol SA (REPYY), based in Spain. The assets are located in Peru and Trinidad & Tobago.

Royal Dutch Shell will pay roughly $6.2 billion for the transaction, of which $4.4 billion will be provided in cash and the remaining $1.8 billion will be assumed as balance sheet liabilities. Included in the deal is Royal Dutch Shell’s commitment to provide roughly 0.1 million tons per annum (mtpa) of LNG for 10 years, to Canada based Canaport LNG terminal of Repsol.

The Repsol asset acquisition is expected to increase Royal Dutch Shell’s LNG volume by roughly 7.2 mtpa, while helping the group to earn significant cash flows.

The acquisition is expected to close by the second half of 2013 or the first half of 2014, subject to regulatory approvals.

Based in Hague, the Netherlands, Royal Dutch Shell is an exploration, production, refining, and marketing company with operations and assets worldwide. The company divides its operations into three major segments: Upstream, Downstream, and Corporate.

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. Shell’s downstream operations have struggled recently due to weak demand for fuel, leading to lower returns in this segment.

Royal Dutch Shell currently carries a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

In the energy sector, Total SA (TOT - Analyst Report) and Range Resources Corporation (RRC - Analyst Report) display better fundamentals and currently carry a Zacks Rank #2 (Buy).