LONDON - Royal Dutch Shell, which has agreed to pay more than $6 billion for the liquefied natural gas businesses of the Spanish company Repsol, is taking advantage of Repsol's weakened balance sheet in order to strengthen Shell's own world-leading position in a business with huge profit potential.
The two companies announced late Tuesday that Shell would acquire Repsol's L.N.G. businesses for $4.4 billion in cash and $2.3 billion in financial leases and assumed debt. The sale attracted more than a dozen bids, according to Repsol, and resulted in a price that was more than double pre-sale estimates, according to Bernstein Research.
Oil companies are trying to add to their positions in liquefied natural gas, and Shell believes global consumption of the fuel will roughly double from now to 2025. Operating L.N.G. facilities are rarely offered for sale.
But the appeal of L.N.G. goes beyond rising world energy use, as the technology that creates the product - supercooling natural gas so that it can be transported by ship - is helping to turn natural gas into a globally traded commodity like oil.
David Fuller's view This looks like an attractive move by RDS (historic, weekly & daily) and the market appears to be supporting it, albeit after a sharp pullback from the historic highs commencing in late January.
LNG is the fossil fuel of the future and RDS currently has 8% of this global market, the largest among Western oil companies according to the article above. Resources shares are currently undervalued because of the lengthy global economic slowdown, which may be in its latter years. Consequently, this is a good time for conservative investors to be acquiring RDS which Yields nearly 5% and trades on an historic and estimated PER of just below 8.
In the full disclosure department, RDS B-Shares are the second largest holding in my personal long-term investment portfolio, and I may continue to increase this position.