Shell Buys 50% Stake In Natural Gas Blocks From Colombia’s Ecopetrol

Royal Dutch Shell has acquired a 50% operating stake in the Fuerte Sur, Purple Angel and COL-5 blocks, located in deep water off the Colombian Caribbean coast, from Colombia’s state-owned oil company, Ecopetrol.

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Shell’s (RDS.A) involvement is seen as a great opportunity for Colombia to develop its energy potential in a safe and efficient manner. Shell will contribute its knowledge and experience to overcome the technical challenges that the maritime operation poses.

Ecopetrol is the largest company in Colombia and is among the 40 largest oil companies in the world.

In a statement on February 7, 2020, when the deal was first announced, Ana Maria Duque, Shell Colombia’s President said, “This position is a significant step in Shell’s aspirations in Colombia and in South America. This agreement brings together Ecopetrol’s regional know-how and Shell’s deep-water experience and ability to provide integrated gas solutions.” She added, “We have collaborated with Ecopetrol on multiple occasions since its creation and we are very happy to continue to demonstrate our more than 84-year commitment working with Colombia and its energy resources.” (See RDS.A stock analysis on TipRanks)

Shell’s shares have lost around 40% in value so far this year as oil demand cratered and energy prices dropped during the coronavirus pandemic .

Earlier this week, MKM Partners analyst John Gerdes initiated a Buy rating on the stock, setting a price target of $57 (59% upside potential). Gerdes says that Shell shares could recover as the company gets leaner and focusses more on renewables.

Gerdes believes that projects that Shell is investing in like wind energy could offer 10% returns on average. For now, he does not expect Shell to recover significantly enough to return to its pre-pandemic position.

Consensus among analysts is a Strong Buy based on 7 Buys and 1 Sell. The average price target of $44.45 implies upside potential of around 24% over the next 12 months.