Shell (SHEL) Sells 35% Stake in Indonesia's Masela Gas Project
Shell plc (SHEL) made a significant decision to sell its 35% stake in Indonesia's Masela production sharing contract (including the Abadi gas project) to PT Pertamina Hulu Energi and Petronas Masela for up to $650 million in cash. This strategic move highlights the company’s focus on disciplined capital allocation. It is likely to have far-reaching implications for the energy industry in Indonesia.
Let's discuss the details of the contract, the reasons behind SHEL’s decision, as well as its potential impact on Indonesia's energy market.
Details of the Deal
Shell's decision to sell its stake in the Masela production-sharing contract is part of a larger deal involving PT Pertamina Hulu Energi and Petronas Masela. Per the terms of the deal, SHEL will receive an initial payment of $325 million, with an additional $325 million upon the final investment decision for the Abadi gas project. The transaction is expected to be completed in the third quarter of 2023, subject to satisfactory regulatory approvals.
Reasons Behind the Sale
One of the key reasons behind Shell's decision is its focus on disciplined capital allocation. SHEL, like many other major energy companies, continuously evaluates its portfolio of assets and seeks opportunities to optimize returns for its shareholders. By selling its stake in the Indonesian assets, the company can redirect its capital toward other projects that better align with its long-term strategic goals.
The Abadi Gas Project
This project is a significant venture in Indonesia's energy landscape. It is currently operated by Japan's Inpex, which holds a 65% operating interest in the Masela production sharing contract. The project aims to exploit the Abadi gas field as a 9.5 million metric tons/year onshore liquefied natural gas (LNG) project, which includes a carbon capture and storage component. The Abadi Gas Project is under review by Indonesian authorities, and its successful execution could have far-reaching implications for Indonesia's energy needs and the broader LNG market.
Impact on Indonesia's Energy Supply
Pertamina CEO Nicke Widyawati stated that the acquisition of the Abadi gas project is intended to ensure adequate oil and gas supply for Indonesia's energy needs. The Asian country is a major player in the global energy market, and its growing energy demands necessitate investments in sustainable and reliable sources of energy. With the acquisition of Shell's stake in the Masela production sharing contract, Pertamina and Petronas aim to bolster Indonesia's energy security and contribute to the country's energy transition journey.
Industry Consolidation and Competitiveness
Shell’s divestment decision also reflects the ongoing trend of industry consolidation and realignment. Energy companies worldwide are reassessing their portfolios and focusing on projects that offer the best potential for growth and profitability. This deal underscores the competitiveness of the energy sector as companies seek to position themselves strategically in an evolving market.
Zacks Rank and Key Picks
Shell is a group of U.S. and Europe-based big energy multinationals with operations across the world. Currently, the company carries a Zack Rank #3 (Hold).
Some better-ranked stocks for investors interested in the energy sector are Evolution Petroleum EPM, sporting a Zacks Rank #1 (Strong Buy), and Murphy USA MUSA and NGL Energy Partners NGL, both carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Evolution Petroleum is worth approximately $273.80 million. EPM currently pays a dividend of 48 cents per share, or 5.38% on an annual basis.
The company currently has a forward P/E ratio of 7.62. In comparison, its industry has an average forward P/E of 11.90, which means EPM is trading at a discount to the group.
Murphy USA is valued at around $6.93 billion. In the past year, its shares have risen 17.5%.
MUSA currently pays a dividend of $1.52 per share, or 0.48% on an annual basis. Its payout ratio currently sits at 6% of earnings.
NGL Energy Partners is valued at around $497.37 million. In the past year, its units have risen 167.4%.
The partnership currently has a forward P/E ratio of 4.33. In comparison, its industry has an average forward P/E of 15.80, which means NGL is trading at a discount to the group.
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Shell PLC Unsponsored ADR (SHEL) : Free Stock Analysis Report
