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Shell Farms-in On North Sea Blocks, Awaits Nod From Regulator

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Royal Dutch Shell plc (RDS.A - Free Report) signed a farm-in agreement to acquire 70% of U.K.-based Egdon Resources’ P1929 and P2304 licenses, which host the Resolution and Endeavour gas discoveries, respectively, located off Yorkshire in the southern North Sea, U.K. Per the agreement, both companies will work on a mutually acceptable forward work program and timeline to secure license extensions and approval for farm-in from the Oil & Gas Authority (“OGA”) – the U.K. oil regulator.

Discovered by the French giant TOTAL SA (TOT - Free Report) in 1966, Resolution discovery contains a mean contingent gas resource of 231 billion cubic feet (bcf). The Endeavour discovery is estimated to have a mean resource of 18 bcf.

About the Agreement

Under the farm-in agreement, Shell will acquire a 70% working interest and will take over the operations of both North Sea licenses, whilst Egdon will retain 30% interest in the licenses. It will pay for the stake by bearing 85% of the acquisition and processing costs of a 3D seismic survey to be carried out on the two targets. The acquisition cost is capped at $5 million, beyond which Shell will stump up 70% of the costs. Shell will also incur all study and manpower costs until the final investment decision on the licenses is reached.

In December 2019, Egdon received permission from OGA to extend the licences on both the blocks to the end of May 2020, provided it secures a farm-in agreement by the end of January and demonstrates plans to deliver a new 3D seismic data shoot across both licenses by March. Therefore, the 3D seismic survey is a pre-requisite to obtain OGA’s approval for these highly prospective licenses.   

With the acquired stakes in two North Sea licenses held by Cluff Natural Resources last year, Shell continues to leverage on the region’s southern gas basin’s potential. Going forward, it will carry on with its focus on pursuing such deals and offer competence to smaller players such as Egdon Resources.  

About Shell

Shell is a global group of energy and petrochemical companies. It is involved in all phases of the petroleum industry from exploration to final processing and delivery. It currently carries a Zacks Rank #3 (Hold). Its earnings beat the Zacks Consensus Estimate by 5.0% on average in the last four quarters.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Some better-ranked stocks from the Zacks Oils and Energy sector are given below:

California Resources Corporation’s (CRC - Free Report) earnings beat the Zacks Consensus Estimate in three of the prior four quarters, the average positive surprise being 711.1%. The company has a Zacks Rank #2 (Buy).

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