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Shell to Vend SASREF Refinery for $631M to Boost Portfolio

Zacks Equity Research
Shell's (RDS.A) decision to offload stakes in SASREF refinery is part of its divestment drive in a bid to streamline its portfolio and slash debt.

Forging ahead with divestment goals, Shell RDS.A is set to jettison a 50% stake in the Saudi refining joint venture SASREF to the state-owned energy colossus Saudi Aramco for $631 million. Based in Jubail Industrial City in Saudi Arabia, SASREF (Saudi Aramco Shell Refinery Co) has a refining capacity of 305,000 barrels per day (bpd). Subject to regulatory approvals, the deal is set for closure later this year, post which Saudi Aramco will take the complete ownership of the facility and integrate the refinery into its growing downstream portfolio.

After being involved in the SASREF JV for about four decades, Shell’s decision to offload its stakes in the refinery is part of its divestment drive in a bid to streamline its portfolio and slash debt. The deal is also in sync with Saudi Aramco’s plans to bolster downstream business and refining capacity. The company is aggressively ramping up the downstream portfolio ahead of its IPO, which may take place in 2021.

Notably, Saudi Aramco intends to become the world’s biggest refiner and double its refining capacity to 10 million bpd by 2030. As such, the company is fast expanding its refinery network and petrochemical divisions via acquisitions. The world’s largest oil producer has been making strategic strides to strengthen downstream business as it hopes to sell more products to the fast-growing markets of Asia. Just last month, Saudi Aramco inked a megadeal worth $69 billion to snap up 70% interest in SABIC (Saudi Basic Industries Corp.) in order to boost downstream growth plans. This month, Saudi Aramco also signed a $1.6-billion deal to acquire a 17% stake in South Korean refiner Hyundai Oilbank.The company is also in talks to buy 25% stake in the refining and petrochemical business of Reliance Industries.

Zacks Rank and Key Picks

Shell currently carries a Zacks Rank #3 (hold). Some better-ranked players in the energy space include Repsol S.A. REPYY, Cabot Oil and Gas COG, and ConocoPhillips COP. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Repsol, carrying a Zacks Rank #2 (Buy), delivered average positive earnings surprise of 8.98% in the trailing four quarters.

Cabot, which sports a Zacks Rank #1, is expected to record year-over-year earnings growth of 66.4%.

ConocoPhillips, holding a Zacks Rank #2, surpassed estimates in each of the last four quarters, with the average being 15.74%.

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