In an attempt to reduce its share of offshore block in Brazil, Royal Dutch Shell Plc (RDS.A) is all set to sell its exploration asset in Santos Basin to local oil and natural gas company QGEP Participacoes SA. This is Shell’s second Brazilian offshore asset disposition deal in the last two months.
Per the terms of the agreement, Shell, the current operator of the concession, will dispose its 30% stake in the BS-4 block for an undisclosed amount, and retain only a 10% interest. The remaining stakes in the block are controlled by Brazilian state-owned oil giant Petroleo Brasileiro S.A., or Petrobras (PBR) and a subsidiary of Chevron Corporation (CVX). However, the deal is subject to the approval of Brazilian oil regulators.
In early July, Shell sold its 20% interest in the deep-water BM-S-8 license to QGEP and Rio de Janeiro-based company, Barra Energia. Shell further intends to dispose its stakes in the BM-S-45 and BM-ES-28 offshore blocks in the latter part of 2011.
The Hague-based Royal Dutch Shell owns one of the largest integrated oil and gas businesses in the world. The group has operations worldwide and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources, and other energy related businesses.
We remain optimistic about the company’s prospects given its exposure to major projects with an emphasis on technological application to unconventional resources. Shell’s consistent financial and operational performance along with overseas market exposure enhances its portfolio and competitiveness.
However, Shell’s upside potential is restricted due to volatile macro backdrop, weak demand for fuel and international business risks. Hence, we are maintaining our long-term Neutral recommendation on the stock. Shell currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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