Integrated energy firm Royal Dutch Shell plc (RDS.A) reported that it will not be going ahead with its previously proposed program to construct a gas-to-liquids (:GTL) plant in Louisiana. Moreover, the company is planning to stop all activities related to the development.
The Gulf Coast GTL project was expected to have a capacity of roughly 140,000 barrels of liquid fuel per day from natural gas feedstock. Moreover, the availability of gas is abundant in the locality. Despite these factors, the company felt that the North American project was not a feasible opportunity in the long run. Shell believes that the expected development expenses as well as uncertainty related to future oil and gas prices pose a potential threat when considerations of profit are taken into account.
Management reveals that the recent decision reflects the company’s plan to allocate capital to more profitable projects worldwide, with a view to increase shareholder value.
U.K.-based Shell is the largest oil company in Europe. Moreover, the company has operations worldwide and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources, and other energy related businesses.
However, Shell’s relatively heavy downstream exposure leaves it less diversified than its integrated peers. As such, the company’s results remain greatly exposed to refining/marketing margins. Shell’s downstream operations have struggled recently due to weak demand for fuel, leading to lower returns in this segment.
Royal Dutch Shell currently holds a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.
Meanwhile one can consider better-ranked energy players like Matador Resources (MTDR), SM Energy Company (SM) and Tesco Corporation (TESO) that offer value. All the stocks sport a Zacks Rank #1 (Strong Buy).