Shell Moves to Increase Its Bet on Natural Gas

There's clearly a movement among the Big Oil companies toward the natural gas sector. One of the latest steps is being taken by Europe's Royal Dutch Shell (NYSE: RDS-A  ) , which will sell about a third of its stake in Australia's Woodside Holdings.

Woodside, that nation's second-largest oil-and-gas producer, following mining giant BHP Billiton (NYSE: BHP  ) , will yield about $3.36 billion for the 10% interest that Shell is unloading. The transaction, which is being conducted with unidentified institutional investors, will reduce Shell's interest in the private company from 34.27% to 24.27%. Once the transaction is completed, Woodside likely will become a more attractive acquisition candidate, because Shell's power to prevent a deal will be reduced.

Shell itself attempted a takeover of Woodside a decade ago, only to be thwarted by Australian authorities. For that reason, among others, I wouldn't be surprised to learn of a bid for the $34 billion company by BHP Billiton, which, in addition to its energy supremacy in Australia, is also the world's largest mining company.

BHP Billiton's effort to acquire Canada's PotashCorp (NYSE: POT  ) ran into a Canadian regulatory buzz saw last week. It would appear that, given Australia's quiet but existent resource nationalism, overtures by the big Melbourne-based company might be met by fewer roadblocks than would offers from foreign companies.

Most members of the Big Oil contingent have been on the acquisition trail with an eye toward increasing their presence in natural gas. For instance, in the biggest deal of them all -- about $30 billion -- ExxonMobil (NYSE: XOM  ) recently acquired XTO Energy, instantaneously rendering the world's largest company also the top gas producer in the U.S.

Also, a partnership between BG Group and ConocoPhillips (NYSE: COP  ) has been buying up coal gas seam properties in Australia. And, as my Foolish colleague Toby Shute has detailed for you, Chevron (NYSE: CVX  ) will spend $4.3 billion (including assumed debt) to acquire Atlas Energy, an independent natural gas producer. Further, Chevron, Exxon, and Shell are laying out a whopping $43 billion to develop Western Australia's massive Gorgon LNG project.

Shell, which will sell up to $8 billion in properties in the next couple of years, while laying off 7,000 employees and trimming its refinery business, just might spend as much as $50 billion for gas assets in Australia during the next 10 years. As recently as August, it partnered with PetroChina (NYSE: PTR  ) in a $3.4 billion purchase of Australia's Arrow Energy. And before that, it shelled out $4.7 billion for U.S.-based East Resources, a shale-gas company.

Unless it misses its bet on the coming ascendancy of natural gas, Shell, which a few years ago was laboring under a scandal involving the overbooking of its reserves numbers, appears to have its operating and financial acts together. With its 88% earnings growth in the third quarter -- after excluding one-time items -- along with its logical bet on the future of natural gas, a fool might ignore this big company, but a Fool clearly would not.

Chevron is a Motley Fool Income Investor pick, and The Fool owns shares in ExxonMobil. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned above. The Fool has a disclosure policy.


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  • Report this Comment On November 10, 2010, at 3:49 AM, bourse wrote:

    Indeed many still see Shell as a big oil company but under the new CEO Voser the company becomes a gas company even more rapidly. Wonder when the market will realize that!

    Thanks for this article!

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