Shell to Cut Outlay in the Americas - Analyst Blog

On Mar 13, 2014, Europe's largest oil company, Royal Dutch Shell plc (RDS.A) revealed its decision to slash its capital investment this year in upstream activities in the Americas. Shell is expected to lower the spending by 20% from the amount invested in 2013, as the company has been incurring losses in the North American shale resource plays.

In an attempt to rebalance its portfolio, Shell is diverting capital toward exploration activities in liquids-rich shale resources and tight gas acreages. The company adopted this strategy to strengthen its financial position and earn considerable cash flow for the shareholders in the years to come.  

Moreover, Shell is planning to divide its downstream portfolio into distinctive performance segments and allocate capital accordingly to maximize profits. Downstream portfolio comprises operations related to chemicals, lubricants, biofuels, refining and fuels marketing. While Shell's chemical, lubricant and biofuel businesses are generating significant profits, its refining and fuel marketing operations are not faring well.  

Shell is one of the largest integrated energy firms in the world with a large and diversified portfolio of development projects that offer attractive long-term opportunities. However, Shell's relatively heavy downstream exposure leaves it less diversified than its integrated peers.

Shell currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked players in the energy sector like Warren Resources Inc. WRES, Helmerich & Payne Inc. HP and Patterson-UTI Energy Inc. PTEN. All the stocks sport a Zacks Rank #1 (Strong Buy).