Shell (RDS.A) Declares Two Gas Discoveries in Utica


Royal Dutch Shell plc (RDS.A), the European oil major, announced that it has made two natural gas discoveries in the Utica formation in Tioga County, PA. Notably, these finds are in an area where Shell holds large acreage, about 430,000 acres, which gives the company additional opportunities to exploit.

The wells – Neal and Gee – were drilled to depths of about 4,420 and 4,724 meters respectively. The Gee well, which has been producing for nearly a year, had an initial flowback rate of 11.2 million cubic feet per day (Mmcf/d) of natural gas. Meanwhile, the Neal well, which commenced production in February, has a peak flowback rate of 26.5 Mmcf/d of natural gas. Shell stated that the figures could be compared to the best publicly announced results so far in the region.

The company also mentioned that four more wells have been drilled in Tioga County, which will expectedly start production in the latter half of the year.

Management at Shell added that both the discovery wells indicate high reservoir quality and that the find is the result of the company’s focus on onshore business. It plans to invest in fewer and more promising resources plays going forward.

Shell owns one of the major integrated oil and gas businesses in the world. The company is expected to continue driving revenues and earnings over the next few quarters. A healthy dividend yield and reasonable valuation are other positives for Shell. However, the company is particularly susceptible to its high exposure to the downstream business, as well as its major natural gas focus and high capital spending.

In keeping with these views, Shell carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. market in the next one to three months.

Meanwhile, one can consider better-ranked players from the broader energy sector such as PetroChina Co. Ltd. (PTR), Sunoco Logistics Partners L.P. (SXL) and Patterson-UTI Energy Inc. (PTEN). All these stocks sport a Zacks Rank #1 (Strong Buy).

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