Integrated oil and gas company, Royal Dutch Shell plc RDS.A recently agreed to divest its coal gasification technology business and patent portfolio for liquids gasification to Air Products and Chemicals, Inc. APD, an industrial gas provider. The financial terms of the deal, which will close in the upcoming months, are yet to be disclosed.
The technology being sold is clean, efficient and reliable and is used to convert low-value refinery residues and asphaltenes into synthesis gas or syngas. Moreover, Shell also established a strategic alliance with Air Products with the target to render solutions to the liquids gasification market. The solution range incorporates engineering, procurement, construction activities, plant operations and technology licensing.
As far as Air Products is concerned, the deal will enable it to increase its capacity to generate syngas for the ongoing and future projects in hand. The company has plans to develop a coal-to-syngas production facility of $3.5 billion in Yulin City of Shaanxi Province in China. Moreover, Air Products created a joint venture in September 2017 with a Chinese coal mining company to supply syngas for 20 years.
What Led to the Move?
The divestment is in line with Shell's strategy to get rid of debt stemming from its $50 billion acquisition of BG Group. The move will also help the company to upgrade and streamline its portfolio.
Notably, the company has already divested more than $23 billion worth of its assets as part of its plan to divest assets worth $30 billion in the 2016-2018 time period. Additionally, Shell intends to divest more than $10 billion worth of assets in the 2019-2020 time period. We would like to remind investors that as of Sep 30, 2017, Shell had around $80 billion in long-term debt. Its debt-to-capital ratio was 25.4%, which the company intends to reduce to 20% with the help of its divestment programs and operational efficiency.
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.
For the first nine months of 2017, the Anglo-Dutch company generated an impressive $15 billion in free cash flows, the most by any supermajor. Moreover, Shell was comfortably able to cover its payouts with cash from operations - something investors really want right now.
In addition, Shell’s stock has gained 26.5% in the last year, substantially outperforming the 12.5% rise of the industry it belongs to.
Zacks Rank and Stocks to Consider
Shell sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Some other top-ranked stocks in the oil and energy sector include Cabot Oil & Gas Corporation COG, and Denbury Resources Inc. DNR. Both these companies carry a Zacks Rank #1.
Houston, TX -based Cabot is an independent energy company. Its sales for the fourth quarter of 2017 are expected to grow 39% year over year. Earnings for the year 2017 are expected to be up 357.14%.
Plano, TX -based Denbury Resources is an integrated energy company. Its sales for the fourth quarter of 2017 are expected to increase 11.2% year over year. The company delivered a positive average earnings surprise of 125% in the last four quarters.
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Air Products and Chemicals, Inc. (APD) : Free Stock Analysis Report
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