Despite the low natural gas prices, Royal Dutch Shell (RDSA) (RDSB) intends to increase its natural gas production in North America. The company has marked its deepwater discoveries in the Gulf of Mexico as well as from giant shale formations in western Canada, the Rockies and the Gulf Coast for this production growth.

While the company declined to say how much the expected North American gas production to grow, it believes that long-term natural gas prices will recover. Royal Dutch Shell has a leading position in natural gas.

The company is the second largest natural gas producer in the world and has led its super major peers in monetizing its substantial worldwide equity natural gas resource base by investing in liquefied natural gas [LNG] and Gas-to-Liquids (GtL) technologies. Royal Dutch Shell has emerged as a clear leader in the fast-growing LNG business.

The group continues to invest in LNG assets and plans to increase its LNG capacity significantly in the next few years. The group’s results have already started benefiting from its new LNG capacities in Nigeria and Oman.

In the U.S., the company has been involved in the development of Great White, Tobago and Silvertip fields (Shell share between 33% and 40%) located in the GoM. Additionally, last year’s acquisition of Calgary-based conventional gas and oil exploration and production company (Duvernay Oil Corporation) had also expanded Shell’s portfolio in Canada.

While we view Shell’s strategy to increase natural gas production is a right step, it remains to be seen how the company moves toward achieving top-quartile performance. Our Neutral rating for the stock remains unchanged.

Zacks Investment Research
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