Shell's Majnoon Success Prompts First Shipment - Analyst Blog

Integrated energy behemoth, Royal Dutch Shell plc (RDS.A) reported that it has exported yield from the Majnoon oilfield, in Iraq. The first shipment was made as output surpassed the First Commercial Production (FCP) target of 175,000 barrels of oil per day (BOE/d).

This is an important milestone for Shell, which has undertaken extensive rehabilitation work at the oilfield to boost output. Production at Majnoon oilfield currently averages 210,000 BOE/d, substantially higher than its FCP target.

Shell had restarted production from the oilfield in September last year and has completed 18 wells to date. The giant Majnoon field, located in Basra province in Southern Iraq, is a significant contributor to the country's economy.

Shell holds a 45% interest in the Majnoon fields. Petronas, a Malaysian oil company, holds a 30% interest whereas the remaining is held by Iraq's Missan oil company.

Apart from its holding in the Majnoon field, Shell also has stakes in several other projects in Iraq. The company has a 44% interest in the Basra Gas Company, along with partners, South Gas Company (51%) and Mitsubishi (5%). Shell also holds a 15% minority interest in the West Qurna-1 oilfield, along with Exxon Mobil Corp. XOM and the Iraqi state partner.

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, several factors such as weak downstream operations, lofty capital spending and high exposure to natural gas weighs heavily on the company.

Shell currently has a Zacks Rank #4 (Sell), implying that it will underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the broader energy sector such as Valero Energy Corporation VLO and Range Resources Corporation RRC. Both these stocks currently sport a Zacks Rank #1 (Strong Buy).