Royal Dutch Shell plc (RDS.A) has entered into a long-term contract with Taiwan’s state controlled CPC Corporation. Shell executed the deal through its unit, Shell Eastern Trading (Pte.) Ltd, which trades as Shell Eastern LNG. The financial terms of the deal was not disclosed.
As per the Heads of Agreement (HOA), Shell will supply two million tones per annum of liquefied natural gas (LNG) to Taiwan. The deal expands over a period of 20 years, starting in 2016.
Shell will supply LNG from its worldwide projects, including Pluto LNG, Wheatstone LNG and North West Shelf Venture in Australia, Brunei LNG, Malaysia LNG, Nigeria LNG, Qalat and Oman LNG, Qatagas 4 in Qatar, and Sakhalin II in Russia.
With this long-term LNG deal, Shell will stand as one of Taiwan’s main LNG suppliers. The two aforesaid companies are working toward concluding a detailed sale and purchase agreement in the coming months.
The Hague, Netherlands-based Shell is a global energy company engaged in oil and gas exploration, production, refining and marketing with operations and assets across the globe.
Given Shell’s strong operational and production efficiency as well as contribution from numerous growth projects, we expect it to sustain the revenue and earnings growth momentum over the next few quarters. We expect the company to benefit from the rise in oil prices as well as the strengthening economy in the near-to-medium term.
However, Shell’s upside potential is restricted due to volatile macro backdrop, weak demand for fuel and international business risks. The company also faces stiff competition from peers such as BP plc (BP) and Exxon Mobil Corp. (XOM).
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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