Shell Ships 1st LNG From Prelude, To Sell Martinez Refinery

Royal Dutch Shell (LON:RDSa) plc RDS.A recently shipped its first liquified natural gas (LNG) cargo from the Prelude floating liquefied natural gas (FLNG) facility in Australia. The startup of one of the world’s most anticipated LNG projects marks a milestone for the European energy giant. Notably, the flagship project is a joint venture among Shell, Inpex Corporation, Korea Gas Corporation and Taiwan’s CPC Corporation, with Shell being the chief operator, owning a 67.5% stake.

The Prelude project will further bolster Australia’s LNG exports, which overtook Qatar as the largest LNG exporting country in 2018. Prelude, on becoming fully functional, will aid Australia in retaining its current position as the world’s largest LNG exporter. Australia’s LNG export is likely to total 80 million metric tons per year.

Prelude to Bolster Shell’s LNG Business

Prelude will handle production, liquefaction, storage and transfer of LNG at sea, along with processing, exporting and condensation of liquefied petroleum gas. The facility has a production capacity of around 5.3 million tons per annum (mtpa) of liquids, with LNG accounting for 3.6 mtpa or 68% of the total capacity. Markedly, Shell dispatched its first NGL cargo from Prelude in March 2019.

The Prelude project has been grappling with ballooning capital cost due to challenges and delays in the construction of the complex vessel since 2012. Nonetheless, final preparation for the project to come online has been ongoing since June 2018, when Shell introduced gas to the FLNG unit as part of the cooling process.

The $15-billion project is expected to generate cash flow from this year and boost Shell’s Integrated Gas business. Being a significant project in its portfolio, Prelude FLNG is a path-breaking facility for the emergence of floating LNG. Notably, Prelude FLNG is also the first and most versatile in the line of projects planned by the company. The facility will enable Shell to unlock new offshore energy sources and provide LNG around the world.

As it is, the $50-billion buyout of BG Group has diversified the company’s portfolio, making it one of the leading producers of LNG. In fact, Shell projects LNG demand to increase to 319 and 384 million tons in 2019 and 2020, respectively. The company’s position as a major supplier of LNG is anticipated to help it meet the fuel’s growing demand and allow cash flow to grow further.

Shell to Jettison Martinez Refinery to Optimize Portfolio

Forging ahead with divestment goals, Shell recently inked a deal to offload the Martinez refinery to PBF Energy Inc. (NYSE:PBF) for $1.1 billion. Subject to satisfactory closing conditions and regulatory approvals, the deal is set for closure within this year. The decision to vend stakes in the refinery is part of its divestment drive in a bid to streamline portfolio and slash debt.

The Anglo-Dutch supermajor wants to steer clear of debt stemming from the $50-billion acquisition of BG Group. Notably, the company divested various non-core assets in the last couple of years and achieved the $30-billion divestment target during 2016-2018. Additionally, Shell intends to divest more than $10 billion worth of assets over the 2019-2020 time period. In April, it sold the SASREF refinery for $613 million as part of divestment drive.

Zacks Rank and Key Picks

Shell currently carries a Zacks Rank #3 (Hold). Some better-ranked energy bigwigs in the same industry include Repsol (MC:REP) SA (OTC:REPYY) and Chevron Corporation (NYSE:CVX) .

Repsol, sporting a Zacks Rank #1 (Strong Buy), is expected to generate long-term EPS growth of 8.60% per our model, higher than the industry’s 7.10% rally. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chevron, which carries a Zacks Rank #2 (Buy), surpassed earnings estimates in three of the trailing four quarters, with average positive surprise of 2.33%.

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