Shell Eyeing 24% Interest in Kakinada Project - Analyst Blog

As per media reports, integrated energy behemoth, Royal Dutch Shell plc (RDS.A) is in discussion with the state government of Andhra Pradesh, India for acquiring a 24% interest in Kakinada liquefied natural gas LNG development.  

The import LNG facility – located off the coast of Andhra Pradesh – will be the first floating re-gasification and storage terminal of the state. It is likely to be ready for active services by 2015 with a 3.5–5.0 million ton annual capacity. Andhra Pradesh Gas Distribution Corporation (APGDC) − a joint venture between Andhra Pradesh Gas Infrastructure Corporation Pvt Ltd (APGIC) and GAIL Gas Ltd – will have a 50% ownership interest in the Kakinada LNG project and is constructing the import terminal. The remaining 26% interest of the project will be held by Gaz de France – a company which is involved in the production and transportation of natural gas. The Kakinada LNG import terminal will mainly meet in Andhra Pradesh's gas consumption demand.

Shell is one of the major integrated energy firms in the world with a large and diversified portfolio of development projects that offer attractive long-term opportunities. The company is now diverting capital toward exploration activities in liquid-rich shale resources and tight gas acreages, which is a positive. However, factors such as weak downstream operations, increased capital spending and high exposure to natural gas are challenges to the company.

As a result, Shell currently has 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 Talisman Energy Inc. TLM, Canadian Natural Resources Limited CNQ and Encana Corporation ECA. All the stocks sport a Zacks Rank #1 (Strong Buy).
 

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