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Shell (SHEL) Abandons Offshore Wind Project in South Korea

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Shell plc (SHEL - Free Report) agreed to sell off its position in the MunmuBaram project to its joint venture (JV) partner, Hexicon. Shell will sell its 80% stake in the 1.25 GW MunmuBaram offshore wind project to Hexicon. The JV partner previously had 20% ownership in the same project, making it the sole owner of the South Korean wind project.

Shell mentioned that when it had invested in this project in 2021, it deemed offshore wind energy as a crucial part of the net-zero energy ecosystem. However, Shell has been abandoning its offshore wind projects recently to increase its focus on the company’s other businesses. It still owns more than 2.1 GW of operational offshore wind capacity and over 9 GW of potential projects around the world.

Per the terms of the agreement, Hexicon will pay $5 million to Shell as a down payment. The agreement also includes a profit-sharing arrangement of $50 million between the two companies, spread over a period of three years.

Hexicon reported that the acquisition of the MunmuBaram wind farm was possible due to the support received from Glennmont Partners — a clean energy-focused infrastructure fund house based out of Europe. Hexicon will draw on its loan facility with Glennmont to fulfill its financial commitment for the acquisition.

The MunmuBaram wind farm is an offshore wind project to be constructed between 65 and 80 kilometres off the coast of Ulsar City in South Korea. The JV designated Vestas' 15 MW wind turbines for the offshore wind project. The Shell-Hexicon JV had signed a supplier agreement with the Danish wind turbine manufacturer for 84 wind turbines in 2022, adding up to a total installed capacity of 1,260 MW. However, Hexicon, in its press release, stated an installed capacity of 1,125 MW for the project.

The MunmuBaram JV secured two Electricity Business Licenses (EBLs) in March 2022 from South Korea’s Ministry of Trade, Industry, and Energy for the project, thereby ensuring that the former had secured all the required EBLs for the project’s development.

MunmuBaram and Ulsan GPS also signed a non-binding memorandum of understanding (MoU) in August 2023. The MoU outlines a long-term offtake agreement for the electricity produced in the floating offshore wind farm to be purchased by Ulsan GPS. However, it is subject to future investment decisions.

In recent times, offshore wind projects have been heavily scrutinized by investors due to high supply-chain costs and soaring costs of raw materials and equipment. Even though the demand for renewable energy, such as floating offshore wind, is poised to witness explosive growth in the future, it remains bleak due to higher development costs.

Zacks Rank and Key Picks

Currently, SHEL holds a Zacks Rank #3 (Hold).

Investors might want to look at some better-ranked stocks in the energy sector, such as Energy Transfer LP (ET - Free Report) , Archrock Inc. (AROC - Free Report) and Repsol (REPYY - Free Report) . While both Energy Transfer and ArchRock presently sport a Zacks Rank #1 (Strong Buy), Repsol carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Energy Transfer is a midstream player that owns and operates one of the most diversified portfolios of energy assets in the United States. With a pipeline network extending more than 125,000 miles, its network spans over 44 states. With a presence in all the major U.S. production basins, the company’s outlook seems positive.

Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.

Repsol is a global multi-energy company, involved in exploration and production activities as well as refining and marketing petroleum products. The company is also actively involved in transitioning toward cleaner and more sustainable energy solutions. Recently, it announced the expansion of its network of renewable fuel refilling stations in Europe, demonstrating its commitment to a sustainable energy model.

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