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Shell (RDS.A) to Divest Non-Op Stake in a GoM Field for $965M

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Royal Dutch Shell plc recently agreed to divest its 22.45% non-operated stake in the Gulf of Mexico’s (GoM) Caesar Tonga field to a subsidiary of Delek Group Ltd., an Israeli conglomerate. The Anglo-Dutch energy major will receive $965-million cash in return. The deal calls for Delek to sign a sales and purchase agreement spanning 30 years with Shell’s trading arm in the United States for the oil produced in the field.

The transaction has an effective date of Jan 1, 2019 and is expected to be over by the end of the third quarter. Delek intends to finance the transaction with non-recourse loans from international banks and own funds. The field is located 300 kilometers south of Louisiana, at a water depth of 1,500 meters. Currently, gross average output from the field is 70,000 barrels of oil equivalent per day (BOEPD) (comprising 90% oil).

The deal is in line with Shell’s ongoing $10-billion divestment program, which is treading on the heels of the $30-billion divestment program in the 2016-2018 time frame. The proceeds from the Caesar Tonga divestment is expected to be directed toward more long-term value-generating assets. In a similar manner, the energy giant divested its Danish upstream unit for $1.9 billion in 2018.

With regard to the Caesar Tonga divestment, the director of Shell’s Upstream operations, Andy Brown said, “This transaction represents our continued focus on strategically positioning our deep-water business for growth and is consistent with our Upstream strategy of pursuing competitive projects that deliver value in the 2020s and beyond.”

Notably, the company’s deepwater output all over the world is anticipated to surpass the 900,000 BOEPD mark by 2020, courtesy of existing prospects in the U.S. Gulf of Mexico, Brazil, Nigeria and Malaysia. The emerging offshore basins in Mauritania, Mexico and the Western Black Sea will also enhance the company’s production.

Anadarko Petroleum Corporation is the operator of the Caesar Tonga field with a 33.75% stake. Equinor ASA (EQNR - Free Report) and Chevron Corporation (CVX - Free Report) are partners in the field, with respective interests of 23.55% and 20.25%.

Price Performance & Zacks Rank

Headquartered in The Hague, Netherlands, Shell’s stock has gained 5.8% in the past month compared with 3.1% collective growth of the industry it belongs to. Currently, the company carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.



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