Integrated energy major Royal Dutch Shell plc (RDS.A) announced that it will not move ahead with the Al Karaana petrochemicals project and will suspend further works on it.
The project, a joint venture of Shell and Qatar Petroleum, was started in Dec 2011 with the signing of a Heads of Agreement (“HOA”) between the two. The companies had contemplated the construction a new world-scale petrochemical facility in the Ras Laffan Industrial City, north of Qatar. Shell has a 20% stake in the project while Qatar Petroleum holds the remaining.
The company added that the project has become commercially unfeasible with evaluations indicating high capital costs. The current weakness in the energy sector further supports this view.
The pricing environment of oil has been feeble for more than six months. In fact, the price of crude has plunged about 60% since June last year.
Notably, oil price is not expected to recover any time soon. Investment bank, The Goldman Sachs Group Inc. (GS) declared that it expects WTI to trade at $40.50 a barrel in second-quarter 2015, which is significantly lower than its previous projection of $70 per barrel. This has led several companies to cut spending and cancel projects with large outlay. If this weakness persists several other projects may also become unfeasible for the company, thus hampering cash flows and earnings.
Shell – expected to release its fourth-quarter 2014 results on Jan 29, 2015 − has operations all over the world. It is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources and other energy-related businesses.
Currently, Shell carries a Zacks Rank #5 (Strong Sell).
Better-ranked stocks in the energy sector include Seadrill Partners LLC (SDLP) and Enbridge Energy Management LLC (EEQ). Both stocks sport a Zacks Rank #1 (Strong Buy).
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