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Shell (RDS.A) to Divest Pipeline Asset Stakes Worth $825M

Zacks Equity Research

Moving ahead with its divestment goals, European oil giant Royal Dutch Shell plc RDS.A is set to vend stakes in pipelines and terminals to its subsidiary Shell Midstream Partners LP SHLX in an $825-million deal.  

According to Shell Midstream, the purchase price is approximately 8.4 times the pipelines’ projected adjusted earnings before interest, taxes, depreciation and amortization for the next one year. The partnership is likely to finance the deal with borrowing under the new and current credit facilities. Subject to satisfactory closing conditions, the transaction is set for closure on Dec 1, 2017. 

Per the deal Shell Midstream will acquire 22.9% and 22% stakes in Mars Oil Pipeline Co LLC and Odyssey Pipeline LLC, respectively. This will increase Shell Midstream’s ownership interests to 71.5% and 71% interests in Mars and Odyssey Pipeline, respectively. Further, the subsidiary will purchase Shell’s entire stake in Triton West LLC, which owns the Anacortes, Colex, Des Plaines, Portland and Seattle products terminals. The partnership will also scoop up 41.48% interest in 55-mile long LOCAP pipeline along with 10% interest in the 1,830 mile long Explorer Pipeline.

The move will help Shell to proceed with its $30-billion divestment program, which is aimed at lowering debt arising from the $47-billion acquisition of BG Group. The latest divestment is expected to enhance Shell’s cash flows and return value to shareholders. With Shell already closing more than $23-billion divestment deals, it remains on track to meet its target by 2018. Further, it announced asset disposals worth around $3 billion and additional $4-billion divestment deals are in advanced talks over and above the $23 billion completed. The move is also in line with the company's aim to upgrade and streamline its portfolio. Shell seeks to simplify the operational structure by offloading assets. 

Headquartered in Netherlands, Shell is one of the largest integrated energy companies engaged in production, refining, distribution and marketing of oil and natural gas. The company currently carries a Zacks Rank #3 (Hold). Shares of Shell have rallied 17.5% year to date compared with 4.4% growth of its industry.



Some better-ranked players in the same industry are ExxonMobil Corporation XOM and BP plc BP. Both these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ExxonMobil delivered an average positive earnings surprise of 8.81% in the trailing four quarters.

BP delivered an average positive earnings surprise of 26.8% in the trailing four quarters.

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Shell Midstream Partners, L.P. (SHLX) : Free Stock Analysis Report
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