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Will Shell Divest Argentina Gas Station Chain to Raizen?

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Per Reuters, integrated oil and gas company, Royal Dutch Shell plc (RDS.A - Free Report) is close to selling its gas station network in Argentina to Raizen Energia SA, an independently operated six-year old joint venture (“JV”) between Shell and Cosan SA. The value of the deal is expected to be more than $1 billion.

The non-binding bid from Raizen surpassed offers from competing companies like YPF Sociedad Anonima (YPF - Free Report) , Quinenco SA and PetroChina Company Ltd. (PTR - Free Report) .

Why Raizen?

Apart from the fact that Shell is Raizen's parent company, the latter controls the second largest chain of gasoline stations in Brazil, neighbor country of Argentina. Raizen was formed in 2011 and controls over 6,000 Shell-branded gas stations in Brazil. The JV is also in charge of distribution of approximately 25 billion liters of fuel in this Latin American country.

Also, the gas station network of Raizen in Brazil uses the Shell brand. Shell wants to keep the brand at fuel stations in Argentina as well. It will indicate that Shell doesn’t want to exit Argentina. The company has future plans to invest in oil and gas shale exploration in the country.

Through Raizen, Shell produces one of the lowest CO2 biofuels in the market. It can reduce carbon emissions by approximately 70% compared with petrol, which minimizes its environmental footprint. 

Raizen's interest in the gas station network in Argentina has increased since President Mauricio Macri’s business-friendly administration took over in December 2015. 

Reasons for the Sale

Shell has put its 630 Argentine gas stations up for sale to continue with its strategy of divesting $30 billion worth of assets. The company undertook this divestiture program following its $50 billion buyout of BG Group to reduce debt. The transaction affected Shell's liquidity as well.

Both Shell and Raizen are yet to comment on the potential deal.

About the Company

Headquartered in The Hague, Netherlands, Shell explores for and extracts crude oil, natural gas, and natural gas liquids. The company transports oil and gas, converts natural gas to liquids to produce and market fuels and other products. It also extracts bitumen from mined oil sands and turns it into synthetic crude oil. Shell also generates electricity from the wind. The company divides its operations into four major segments: Upstream, Downstream, Corporate and Integrated Gas.

In terms of assets, Shell owns a strong and diversified portfolio of global energy businesses that offer attractive long-term growth opportunities. The group’s strong inventory of development projects should help volume growth in the long run.

Shell’s revenues, earnings and cash flow have been significantly hurt by the three-year commodity bear market, while attacks on its local establishments by Nigerian militants have created another major problem.

Price Performance

Shell’s stock has gained 1.3% year to date, substantially outperforming the 6.7% fall of the industry it belongs to.

Zacks Rank and Stock to Consider

Shell has a Zacks Rank #3 (Hold). A better-ranked stock in the oil and energy sector is Range Resources Corp. (RRC - Free Report) . It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Range Resources’ sales for 2017 are expected to increase 122.8% year over year. The company delivered a four-quarter average positive earnings surprise of 51.8%.

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