Market Overview

Shell Falls after Discovery of 10-Mile Oil Sheen


It was revealed on Thursday that Royal Dutch Shell (NYSE: RDS.A) saw its biggest fall in eight months in London following the discovery of a "light sheen" over 10 square miles in the Gulf of Mexico.

Recent oil disasters have made investors nervous and increasingly jumpy at the mere idea of an oil spill, so even a light sheen is going to be practically disastrous for the share prices.

Class A shares in the company fell up to 5.5%, which represents the most since August 9, to the lowest intraday level since October 6.

In response to the news, Shell has deployed an oil-spill response vessel, and it has requested flights to keep an eye on the sheen which lies between its Mars and Ursa output areas. According to a company representative both platforms are still operating.

"Shell has no current indication that the sheen originates from its wells," Shell spokeswoman Kelly Op de Weegh said.

The potential leak saw Shell fall 5% to 2.034 pence by 12:26 p.m. in London. That number brigs the company's decline for the year to 14%.

On April 9, ValuEngine stated that it believes RDS.A should be trading at $72.77. This makes RDS.A 5.44% undervalued. Fair Value indicates what it believes the stock should be trading at today if the stock market were perfectly efficient and everything traded at its true worth.

For RDS.A, ValuEngine bases this on actual earnings per share (EPS) for the previous four quarters of $8.51, forecasted EPS for the next four quarters of $9.38, and correlations to the 30-year Treasury bond yield of 3.32%. There are an additional 10 firm specific and interest rate related parameters, each playing a role in the valuation analysis.

Meanwhile, Canaccord Genuity said on March 26 that Shell was a consensus Buy for much of 2011, but seems to have been ignored by investors since early 2012 due to a combination of weak 4Q results, a disappointing dividend and rising broad market risk appetite.

"Shell is at a markedly different point in its capital cycle to most peers, having brought 3 key projects ($30bn of capital) on stream in the past year."

Posted-In: Earnings News Global Analyst Ratings


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