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Shell (RDS.A) Subsidiary to Buy FPSO Vessel for Stones Field


Integrated oil and gas company Royal Dutch Shell plc RDS.A recently announced that its subsidiary, Shell E and P Offshore Services B.V. will execute its contractual right to acquire the Turritella floating, production, storage and offloading (FPSO) vessel for C$1 billion cash for Stones deep-water development.

Shell is buying the FPSO vessel from a joint venture ("JV") where SBM Offshore, Mitsubishi Corp. MSBHY, and Nippon Yusen Kabushiki Kaisha own 55%, 30% and 15% interest, respectively. For the next few months, Shell and SBM will be engaged in the transition of operations in the Turritella vessel. The transaction is expected to close in early 2018.

The JV will use the net proceeds from the transaction for project finance recovery. It will help SBM with its proportional net debt position.

Will the Deal Prove to be Fruitful?

We would like to remind investors that Shell is using the vessel to operate in its wholly owned Stones field, which is located in the Gulf of Mexico, 200 miles southwest of New Orleans, LA, with water depth of 2,900 meters. Turritella had set sail from a Singapore shipyard in Oct 2015 and arrived at Stones development in the Gulf of Mexico in Jan 2016. The field – discovered in 2005 and started producing in Sep 2016 – has peak production capacity of approximately 50,000 barrels of oil equivalent per day (BOE/d). The Stones field currently has two production wells with six more to be added later and has been estimated to contain 2 billion BOE.

The new purchase by Shell, Turritella FPSO, has a production capacity of around 60,000 barrels of oil and 15 million cubic feet of natural gas. The company expects its global production to be more than 900,000 BOE/d level by early 2020s. That is why the company requires competitive technological improvement and appropriation.

The Turritella FPSO, the world’s deepest floating oil and gas production system at 2,900 meters, has won the Spotlight on New Technology Award – OTC 2017. With the help of Turritella, Shell has plans to explore the reservoir in the Gulf of Mexico, which has a depth of approximately 8,077 meters below sea level and further 5,181 meters below the mud line.

The vessel also has the potential to operate in the company's other deepwater developments in Brazil, Nigeria, and Malaysia.

About the Company

Headquartered in The Hague, Netherlands, Shell explores for and extracts crude oil, natural gas, and natural gas liquids. The company – belonging to the Zacks categorized Oil and Gas, International Integrated industry – transports oil and gas, converts natural gas to liquids to produce and market fuels and other products. It also extracts bitumen from mined oil sands and turns it into synthetic crude oil. Shell also generates electricity from the wind. The company divides its operations into four major segments: Upstream, Downstream, Corporate and Integrated Gas.

Shell’s revenues, earnings and cash flow have been significantly hurt by the 3-year commodity bear market, while attacks on its local establishments by the Nigerian militants have created another major problem.

Zacks Rank and Stocks to Consider

Shell presently has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the oil and energy sector include Crescent Point Energy Corporation CPG and Canadian Natural Resources Limited CNQ. Both these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Crescent Point’s sales for the second quarter of 2017 are expected to increase 20.2% year over year. The partnership delivered an average positive earnings surprise of 354.9% in the last four quarters.

Canadian Natural Resources’ sales for 2017 are expected to increase 49.4% year over year. The company delivered a positive earnings surprise of 30.8% in the first quarter of 2017.

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