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Is Shell (RDS.A) Pulling Out of Majnoon Oil Field in Iraq?

Zacks

Per Reuters, integrated oil and gas company, Royal Dutch Shell plc RDS.A intends to divest its interest in the Majnoon oil field in Iraq. Production in the oil field, located near Basrah, started in 2014. The energy major received an approval from the Iraqi government to exit the oil field that presently has an average production capacity of 210,000 barrels per day.

Rationale

The primary reason behind Shell leaving Majnoon is that the oil department of the country and the company could not agree on future production plans and investments for the field.

The move is in line with the company's strategy to divest its $30 billion worth of assets globally, following the $50 billion mega acquisition of BG Group plc. Also, since November 2016, Shell has been considering moving away from the oil fields to concentrate on gas and petrochemical projects in Iraq.


It is to be noted, Shell has 45% operating stake in the Majnoon oil field. Malaysian national petroleum company, Petronas and Iraq’s Missan Oil Company have 30% and 25% stakes in the oil field, respectively.

The contract between the company and the oil department regarding the Majnoon oil field is set to expire in 2030.

About the Company

Headquartered in The Hague, Netherlands, Shell explores for and extracts crude oil, natural gas, and natural gas liquids. The company 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.

In terms of assets, Shell owns a strong and diversified portfolio of global energy businesses that offer attractive long-term growth opportunities. The group’s strong inventory of development projects should help volume growth in the long run.

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

Price Performance

Shell’s stock has gained 6.3% year to date against the 2.6% fall of the industry it belongs to.

Zacks Rank and Stocks to Consider

Shell carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector are Lonestar Resources US Inc. LONE, Range Resources Corporation RRC and Subsea 7 SA SUBCY, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lonestar Resources’ sales for 2017 are expected to surge 60.2% year over year. The company delivered a positive earnings surprise of 62.5% in the second quarter of 2017.

Range Resources’ sales for the third quarter of 2017 are expected to increase 27% year over year. The company delivered an average positive earnings surprise of 51.8% in the last four quarters.

Subsea’s sales for 2017 are expected to increase 11.6% year over year. The company delivered an average positive earnings surprise of 83.8% in the last four quarters.

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