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Shell (RDS.A) & Gazprom Neft to Create West Siberian Oil JV

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Royal Dutch Shell plc (RDS.A - Free Report) recently agreed to create a 50/50 joint venture (JV) with Gazprom Neft, with the objective of exploring and developing oil fields in the Yamal region of Russia. The deal was signed at the St. Petersburg International Economic Forum.

Notably, the Western sanctions against Moscow, following the Russian annexation of Crimea in 2014, have elevated risks associated with investing in oil and gas projects in Russia. This scenario makes the creation of the JV a rare move, considering the recent years’ geo-political environment.

The companies have been working to develop the Salym group of oil fields in the country. The recently planned JV is anticipated to develop the Meretoyakhinskoye oil field, with projected reserves of around 1.1 billion tons of oil, in the Yamal region. Currently, a subsidiary of Gazprom Neft, Meretoyakhaneftegaz holds a license to develop the oil field. Shell will receive a 50% stake in the subsidiary on completion of the deal, which is expected by the end of this year or early-2020.

The latest deal marks a milestone for both the companies. This move is expected to help the Russian company to increase production in the long term. Although Russia made an output cut deal with the Organization of the Petroleum Exporting Countries (OPEC) to help recover crude prices, Gazprom Neft expects the situation to gradually improve. As such, the company intends to increase output after 2020.

Price Performance

Headquartered in The Hague, Netherlands, Shell’s stock has gained 9.2% year to date compared with 2.8% collective growth of the industry it belongs to.

Zacks Rank and Stocks to Consider

Currently, Shell carries a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Repsol SA (REPYY - Free Report) , TOTAL S.A. (TOT - Free Report) and Chevron Corporation (CVX - Free Report) . While Repsol sports a Zacks Rank #1 (Strong Buy), TOTAL and Chevron carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

Repsol’s earnings per share estimates for 2019 have increased from $2.03 to $2.04 in the past 60 days. It has witnessed two positive estimate revisions during the said time period.

TOTAL’s earnings growth is projected at 6.9% through 2019.

Chevron’s second-quarter 2019 earnings growth is projected at 14.6%.

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