Royal Dutch Shell (RDS.A) is looking at a potential sale of its Texas shale assets that could be worth more than $10 billion, according to a Reuters report citing confidential sources. The assets in the U.S. Permian Basin accounted for about 6% of the company’s total oil and gas production in 2020. Shell could divest the assets entirely or partially.
The company is making a shift from fossil fuels as it faces pressure to reduce its carbon emissions. Its plan involves gradually reducing oil and gas production and increasing investments in renewable energy. For example, by 2025, Shell wants renewables and low-carbon technology investments to make up 25% of its overall budget.
Asset disposals and reduced investments in oil are a major part of Shell’s strategy to shrink its fossil fuel business. The company has agreed to sell most of its U.S. oil refineries. Therefore, selling the Texas shale assets would further reduce its U.S. oil and gas business.
A sale of the Texas assets could help Shell reduce its debt. The company’s net debt was $71 billion at the end of March, according to Reuters. Management aims to bring it down to at least $65 billion. But there is no guarantee Shell will be able to reach a deal for the assets. (See Shell stock analysis on TipRanks)
Last month, Mizuho analyst Daniel Boyd reiterated a Buy rating on Shell stock and raised the price target to $61 from $56. The analyst’s new price target suggests 47.88% upside potential.
Boyd sees improving oil demand driving up prices, which bodes well for Shell’s oil business. The analyst sees chances of global oil demand returning to pre-pandemic levels in the fourth quarter.
Consensus among analysts is a Moderate Buy based on 5 Buys and 2 Holds. The Shell average analyst price target of $53.13 implies 26.1% upside potential to current levels.
Shell scores a 7 out of 10 on TipRanks’ Smart Score rating system, suggesting that the stock is likely to perform in line with market averages.
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