Shell JV Decides $3.9B Investment

Zacks

Integrated energy firm, Royal Dutch Shell plc’s (RDS.A) Nigerian joint venture – SPDC JV – has decided to invest a total of $3.9 billion to develop two projects – the Trans Niger Pipeline loop-line (:TNPL) and the Gbaran-Ubie Phase Two, both based in the eastern Niger Delta of Nigeria.

Nigerian National Petroleum Corporation (:NNPC) holds a 55% stake in SPDC JV. Shell Petroleum Development Company of Nigeria Ltd (:SPDC), which is a wholly owned affiliate of Royal Dutch Shell, owns 30% of the joint venture. The rest 10% and 5% stakes are held by TOTAL SA (TOT), an integrated oil and gas company, and Nigerian AGIP Oil Company Limited, respectively. The operator of the joint venture is SPDC.

The venture of Royal Dutch Shell is planning to spend roughly $1.5 billion for the development of the TNPL project. The pipeline transports roughly 180,000 barrels of oil per day to the Bonny crude oil Export Terminal. Precautionary measures should also be taken to improve the protection of the pipeline system, as the part of the pipeline was impacted from theft of crude oil before.

Moreover, $2.4 billion will be invested for five gas supply and infrastructure projects of the Gbaran-Ubie development. It is estimated that the peak production from the projects will be 215,000 barrels of oil equivalent per day.

In terms of assets, Royal Dutch Shell owns a strong and diversified portfolio of global energy businesses that offer attractive long-term growth opportunities. The company currently has approximately 30 projects under construction that should guarantee upstream growth for years to come.

However, Royal Dutch Shell’s relatively heavy downstream exposure leaves it less diversified than its integrated peers. Moreover, the company’s downstream operations have been affected by the weak demand for fuel, leading to lower returns in this segment.

Royal Dutch Shell currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.

Meanwhile, one can consider Ferrellgas Partners LP (FGP) and EQT Midstream Partners LP (EQM) as good buying options.  The energy stocks – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with the potential to rise significantly from the current levels.

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Read the Full Research Report on TOT

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