Shell Drops Down Amberjack Pipeline To Midstream Unit

Royal Dutch Shell (LON:RDSa) plc RDS.A recently agreed to drop down its ownership interest in the Amberjack Pipeline Company LLC to Shell Midstream Partners, L.P. (NYSE:SHLX) , a subsidiary of Shell Pipe Line Corporation. The deal is valued at $1.22 billion (more than £900 million).

Deal Details

Per the agreement, Shell will divest its 75% interest of Amberjack Series A and 50% interest of Amberjack Series B to Shell Midstream. Notably, the deal marks the largest acquisition for Shell Midstream to date. The drop down is anticipated to close within May 11, 2018.

Headquartered in Houston, TX, Shell Midstream intends to fund the deal using borrowings from its existing credit facilities and anticipates its share of the pipeline's net income to grow to an annual run rate of $145 million by the end of this year, along with a corresponding quarterly dividend of $40 million. Last year, a similar drop down had taken place, with Shell divesting stakes in pipelines and terminals to Shell Midstream in a deal valued at $825 million.

The transaction is expected to heighten Shell's midstream assets' value without dropping possession of crucial infrastructures. The move is also in line with the company's aim to upgrade and streamline its portfolio. Shell intends to simplify the operational structure by offloading assets.

About Amberjack Pipeline

Located in the Gulf of Mexico, the Amberjack pipeline is a joint venture between Shell and Chevron Corp. (NYSE:CVX) . Currently, the pipeline ships around 300,000 barrels of oil per day (BPD). By the end of 2019, the pipeline's capacity is expected to rise to 400,000 BPD.

Price Performance

Headquartered in The Hague, Netherlands, Shell’s stock has gained 28.4% in the past year, substantially outperforming 18.9% rise of the industry it belongs to. As of Mar 31, 2018, the company had $21,927 million in cash and $88,022 million in debt (including short-term debt).

Zacks Rank and Stock to Consider

Shell carries a Zacks Rank #3 (Hold).

Investors interested in the Energy sector can opt for a better-ranked stock in the same space, namely Nine Energy Service, Inc. (NYSE:NINE) , sporting a Zacks Rank #1 (strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based Nine Energy Service is an onshore service provider. For 2018, the bottom line is likely to be up 33.4%. In the last reported quarter, the company delivered a positive earnings surprise of 6.3%.

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