Shell plc SHEL is facing challenges over its planned sale of a 37.5% stake in the Schwedt refinery in Germany to the British energy conglomerate Prax Group. The deal was expected to be closed by the first half of 2024, contingent upon regulatory approvals and other partner considerations. However, it has been delayed owing to certain pending lawsuits by third parties.
Shell has been trying to divest its stake in the refinery for several years now. The Schwedt refinery is located at the border of Poland and Germany. It provides fuel to the Berlin-Brandenburg region and is an important facility in the region.
The deal has encountered challenges owing to Rosneft, who is a major stakeholder in the Schwedt refinery. Rosneft, an oil and gas company based in Russia, had been stripped of its control over the refinery by Berlin following the Russian invasion of Ukraine. Consequently, Germany is trying to reduce its dependence on Russian oil and has cut off its ties with Russian energy resources. However, this development posed a major block in the deal as Rosneft still had ownership rights on the refinery due to its shares.
Furthermore, one of the pending lawsuits mentioned earlier involves a bid by Rosneft to block the sale of Shell’s stake to Prax. A German court, however, has assured that this bid has very low chances of success.
Rosneft’s ownership in the Schwedt refinery was put under trusteeship soon after Russia invaded Ukraine. The Economy Minister of Germany highlighted that the process of dissolving the trusteeship was underway as Berlin intended to nationalize Rosneft’s assets in Germany, including its stake in the Schwedt refinery.
Shell’s stake in the Schwedt refinery had an estimated value of 155-190 million euros. However, per a statement by Reuters, the stake had a negative equity value of approximately 14 million euros.
Shell had been looking to sell off its stake in the refinery for years. In 2021, Shell had negotiated a deal with the Alcmene group based in Vienna. However, the majority owner of the asset, Rosneft prevented the deal from being closed. A ruling by the Berlin administration court has theoretically given Alcmene group the right to take over Shell’s stake in the refinery. This ruling added further complications to the deal, delaying the divestment.
Shell and Prax are currently working together to finalize the sale. Per a statement by Reuters, the agreement includes a clause stating that if the deal isn’t concluded by mid-September 2024, then both parties must agree to an extension or renegotiate the terms of the deal.
Prax has successfully made several acquisitions this year. It has acquired the Greater Laggan area oil and gas fields in the West of Shetland from TotalEnergies. This acquisition also included the Shetland gas plant. Prax also acquired the Lancaster oil field operator, Hurricane Energy, in a transaction worth 250 million euros.
Currently, SHEL carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the energy sector are PEDEVCO Corp. PED,TechnipFMC FTI and VAALCO Energy EGY. PEDEVCO presently sports a Zacks Rank #1 (Strong Buy), while TechnipFMC and VAALCO Energy carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
PEDEVCO is engaged in the acquisition and development of energy assets in the United States and Pacific Rim countries. The company stands to benefit significantly from its holdings in the Permian Basin, one of the most prolific oil-producing regions in the United States, as well as in the D-J Basin in Colorado, which includes more than 150 high-quality drilling locations. Combined with bullish oil prices, this is expected to boost the company's production and overall profitability.
TechnipFMC is a leading manufacturer and supplier of products, services and fully integrated technology solutions for the energy industry. The company’s total backlog witnessed a record high of $13.9 million in the second quarter of 2024, indicating a year-over-year increase of 4.51%. This growing backlog ensures strong revenue growth for FTI in the future.
VAALCO Energy is an independent energy company involved in upstream business operationswith a diversified presence in Africa and Canada. Having a large inventory of drilling locations in premium Canadian Acreage, the company’s production outlook seems bright.
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