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Shell (SHEL) and Exxon (XOM) Bid Farewell to Groningen Field

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Shell plc (SHEL - Free Report) and ExxonMobil Corporation (XOM - Free Report) operated Groningen gas field in the Netherlands has been permanently shut down. The Dutch Senate passed the law to permanently close the field, following a spike in seismic activities due to the extraction of gas from the field. The Groningen gas field was one of Europe’s major suppliers.

To mark the close of the major gas field, a symbolic ceremony was performed at the same place where the deposits were discovered back in 1959. Since the 1960s, Groningen has contributed significantly to the economy of the Netherlands. However, since then, the region has been plagued with around 1600 earthquakes of varying magnitudes that have caused severe damage to thousands of buildings. The Dutch government insisted upon halting production from the Groningen gas field to prevent further seismic risks.

The Senate passed the law to completely shut down the field by Oct 1, 2024. In June 2023, the government announced the decision to keep the gas wells of the Groningen field operational for an additional year. This move was aimed at ensuring a stable gas supply in case of an energy shortage due to geopolitical tensions around the world or an extremely cold winter.

In October 2023, normal gas production at the Groningen field was ceased, following years of production cuts. However, during a cold snap in recent months, the field was available for limited production.

Previously, certain factions of the Dutch Senate, as well as industrialists, opposed this law, citing concerns regarding the country’s energy security. Although the Groningen gas field is being shut down, it still holds huge untapped reserves. The critics of the law have argued that leaving these untapped reserves could leave the country at a risk of energy insecurity even though the government has assured that the risk is really low.

NAM, the joint venture of Shell and Exxon Mobil, that operates the field have sought an arbitration to determine if they are eligible for compensation from the Dutch government owing to the early cessation of gas extraction activities from the Groningen gas field, even though it has substantial reserves remaining.

Zacks Rank and Key Picks

Currently, SHEL and XOM carry a Zacks Rank #3 (Hold), each.

Some better-ranked stocks in the energysector are SM Energy (SM - Free Report) and Hess Midstream LP (HESM - Free Report) . SM Energy presently sports a Zacks Rank #1 (Strong Buy), while Hess Midstream carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SM Energy is an upstream energy firm operating in the prolific Midland Basin region and the South Texas region. For 2024, the company expects its production to increase from the prior- year reported figure, signaling a bright production outlook.

Hess Midstream LP owns, operates, develops and acquires a wide range of midstream assets, providing services to Hess Corporation and other third-party customers. The partnership has a stable fee-based revenue model secured via long-term commercial contracts. Since Hess Midstream operates through 100% fee-based contracts, it is exposed to minimal commodity price risks.

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