Royal Dutch Shell plc RDS.A is set to offload its entire stake in Iraq-based West Qurna 1 oil field through a $406-million deal, moving ahead with its divestment goals. This represents the second international divestment deal that the company announced in a week after declaring its intention to exit New Zealand by selling its portfolio of energy assets in a $578 million deal.
Per the latest divestment deal, the Anglo-Dutch supermajor will vend 19.6% interest in the West Qurna 1 oil field to Japan's Itochu Corporation. According to the agreement, Itochu will assume a debt of $144 million. The deal has already received necessary regulatory approvals and is scheduled for completion within a next few days.
The European oil giant Shell commenced its operations in the Qurna 1 field in 2009 partnering with energy firms. Other stake holders in the venture are ExxonMobil Corporation XOM, PetroChina Company Limited PTR, Indonesia-based Pertamina Corporation and state partner Oil Exploration Company with the respective interest of 32.7%, 32.7%, 10% and 5%. Post the contract’s culmination, ExxonMobil will continue as the chief operator of the Qurna 1 field.
The move will help Shell proceed with its $30-billion divestment program. The deal provides the company with a major uplift in its drive to decrease debt following the acquisition of BG Group for $47 billion. The divestment is expected to reduce the company’s cost and enhance cash flow as well as return to capital.
With Shell already wrapping up divestment deals worth more than $23 billion, it remains focused to meet its target by 2018. Further, the company announced asset disposals amounting to around $2 billion and talks for prospective transactions of additional $5 billion divestment deals are already in advanced stages.
The deal is also in tandem with the company’s strategy to streamline its upstream portfolio in the Middle-Eastern country and simplify its operational structure by getting rid of the less profitable non-core assets.
The company also intends to divest its interest in the Majnoon oil field in Iraq to the state-run Basra Oil Company by June 2018. Apart from its divestment goals, another reason behind Shell steering clear of Majnoon is that the oil department of the country and the company could not mutually consent on the future production plans and investments for the field. With the divestment of both Majnoon and Qurna 1 field, Shell will jettison all its oil assets in the country as it shifts its sights toward natural gas.
The company will however, carry on with its operations in Iraq to ramp up the country’s energy infrastructure as it will continue its association as a joint-venture partner in the Basra Gas company with 44% stake. The collaboration focuses on capturing and utilizing associated gas from three large oilfields in Basra. Further, Shell holds a stake in Nebras petrochemicals plant in Basra.
Headquartered in Netherlands, Shell is one of the largest integrated energy companies, engaged in production, refining, distribution and marketing of oil and natural gas. The company has a Zacks Rank #3 (Hold). Shares of Shell have rallied 21.4% over a year, outperforming the industry’s gain of 12.5%.
Meanwhile, investors interested in the energy space can consider a better-ranked stock, Pioneer Natural Resources Company PXD, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Based in Texas, Pioneer Natural is an independent exploration and production company, displaying an impressive earnings surprise history. The company delivered a positive surprise in each of the trailing four quarters with average beat of 66.92%.
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