Banking on the recovering energy landscape, Royal Dutch Shell plc (RDS.A - Free Report) recently announced plans to redevelop the Penguins oil and gas field in the North Sea, the company’s first major project in the aging basin in the last six years.
Shell has agreed to construct a floating production, storage and offloading vessel (FPSO) — the company’s new manned installation in North Sea in almost three decades. Shell will drill an additional eight wells to be tied back to the new FPSO vessel.
The project with a production capacity of 45,000 barrels of oil equivalent a day has a breakeven price of less than $40 a barrel, making it more promising than other offshore basins and most of North America’s shale production. The remodeling of portfolio and strategic initiatives have made Shell resilient to reduced crude prices.
Production in the North Sea has remained tepid since the late 1990s owing to depleting fields. Thus many oil majors have been facing troubles in generating profits. Hence oil companies have been reducing their footprint in the expensive North Sea.
Late last year, Shell vended over half of its non-core North Sea properties to private equity firm Chrysaor Holdings Limited to advance its $30-billion divestment goals. BP plc (BP - Free Report) also divested 25% of its stake in Magnus Field to EnQuest PLC (ENQUF - Free Report) early last year.
However, of late the region has started to gain momentum owing to several new projects including BP operated Quad 204 field, in which Shell also owns a 55% interest. Further the introduction of transferable tax history by Chancellor Phillip Hammond will help to bring in a slew of contracts in the North Sea and increase production.
Shell had a dominant presence in the North Sea for more than 40 years. Penguins oil and gas field — a 50:50 joint venture between Shell and ExxonMobil Corporation (XOM - Free Report) — represents a priority holding in Shell’s North Sea assets portfolio. After successful portfolio optimization and favorable tax changes, the company plans to ramp up its North Sea output through core production assets. It intends to invest in a number of fresh projects in the basin in the coming years.
Headquartered in Netherlands, Shell is one of the largest integrated energy companies engaged in production, refining, distribution and marketing of oil and natural gas. Shares of Shell have rallied 27.7% over a year compared with 13.6% growth of its industry.
The company currently sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
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