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Exxon & Shell JV to Oppose Lower Production Cap at Groningen

According to Reuters, Nederlandse Aardolie Maatschappij or NAM – a joint venture between ExxonMobil Corporation XOM and Royal Dutch Shell plc RDS.A – announced that it is going to oppose a plan of the government of Netherlands to lower production cap at the Groningen natural gas field by another 10%.

The reason behind the Dutch government's decision is high number of tremors due to depletion and subsidence in the Groningen area that are triggered by NAM’s work. The area otherwise does not fall under a natural earthquake zone.

Investors should know that the majority of the gas production in Netherlands is from the Groningen field where ExxonMobil has 30% interest. The most recent cap was announced by the government in May. It also stated that no model can predict the acceptable level of production for the Groningen area. The production cap will decrease gas production to 21.6 billion cubic meters (bcm) per year from Oct 2017 from production of 53.9 bcm in 2013.

Along with the National Coordinator Groningen, a government set up, NAM studies how seismic risks can develop in the future to reduce risks in the long run. With the growing demand for natural gas in the region, NAM is striving to deliver due to the production caps and safety standards.

The hearing process for NAM will start on Jul 13, 2017, at a Council of State, where environmentalists, who believe the production cap should be lowered, will also be heard. 

About the Companies

Irving, TX-based ExxonMobil is one of the world’s largest publicly traded oil companies, engaged in oil and natural gas exploration and production, petroleum products refining and marketing, chemicals manufacture, and other energy-related businesses. Approximately 83% of Exxon’s earnings come from its operations outside the U.S. The company divides its operations mainly into three segments: Upstream, Downstream and Chemicals.

Shell divides its operations into four major segments: Upstream, Downstream, Corporate and Integrated Gas. The 3 year commodity bear market has adversely affected Shell’s earnings and cash flows, particularly at its upstream unit. It is headquartered in The Hague, Netherlands.

Both the companies belong to the Zacks categorized Oil and Gas – International - Integrated industry.

Zacks Rank and Stock to Consider

ExxonMobil presently has a Zacks Rank #3 (Hold), while Shell currently has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the oil and energy sector include Enbridge Energy, L.P. EEP and Canadian Natural Resources Limited CNQ. Both these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Enbridge’s sales for the second quarter of 2017 are expected to increase 13.2% year over year. The company delivered a positive earnings surprise of 128.6% in the first quarter of 2017.

Canadian Natural Resources’ sales for the second quarter of 2017 are expected to increase 26.9% year over year. The company pulled off a positive earnings surprise of 30.8% in the first quarter of 2017.

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