The Zacks Analyst Blog Highlights: Royal Dutch Shell, Sasol, BP, Chevron and Bank of America

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May 02, 2012, 09:30 ET

CHICAGO, May 2, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Royal Dutch Shell (NYSE: RDS.A), Sasol (NYSE: SSL), BP (NYSE: BP), Chevron (NYSE: CVX) and Bank of America Corporation (NYSE: BAC).

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Here are highlights from Tuesday's Analyst Blog:

Update on Shale Gas Revolution

Since I last wrote about the Shale Gas Revolution and its implications late in 2011, there have been many more important developments, as well as some new trends.

New Shell GTL Plant in Louisiana

The most important, and most recent, news is that Royal Dutch Shell (NYSE: RDS.A) is apparently in the preliminary stages of feasibility and design work on a potentially huge, $10 billion, 2 million gallon per day (approximately 50,000 barrels per day) Gas-to-Liquids (GTL) facility in Louisiana, using abundant natural gas feedstock.

This development is important for several reasons:

Validation of Future Gas Abundance

First, it validates the long-range forecast of persistently high volumes of economical natural gas. Since the plant would not enter production until 2014 at the earliest, a gigantic, experienced GTL and gas producer must be confident that natural gas prices will remain a relative bargain, and that this will continue for a long time into the life of the plant.

GTL Remains Attractive

Second, despite being burned by the cost-overruns at its large Pearl GTL plant in Qatar, Shell still sees attractive returns in such a plant. This is an important demonstration for other market participants, some of whom may decide to emulate Shell. Indeed, Sasol (NYSE: SSL) of South Africa already indicated a few months ago that it would build a large GTL plant in Louisiana.

Export Capability

Third, the plant is in good export position -- it will not be located inland to take advantage of the very cheapest natural gas prices in the heart of major shale gas plays, but close to tidewater for easy shipping of diesel and other liquids to Latin America and Europe.

GTL More Attractive than LNG

Fourth, it is very telling that Shell did not decide to work on building a Liquified Natural Gas, 'LNG,' facility to export gas from its own shale or offshore production. While natural gas prices in Europe and elsewhere in the world are much higher than those in North America, the energy-equivalent prices of diesel and other petroleum products are at even more of a premium versus raw natural gas.

While it may be cheaper to build gas liquifaction and re-gassification plants, their economics may not be able to overcome the huge price differential of products versus raw gas for a long time to come. This could mean that new LNG plants for Kitimat, British Columbia, and Valdez or Anchorage, Alaska, and, more fancifully, Halifax, Nova Scotia, may not be built -- in favor of GTL plants.

The implications of that last point are potentially profound. The more natural gas that gets converted to liquids for export in North America -- rather than exported to East Asia, Europe, and elsewhere -- means natural gas that will not be sent into the world markets to reduce natural gas prices in those markets.

Hence, relatively high prices may persist there, maintaining the already major incentives to drill for gas and associated liquids in other propitious shale formations. In the U.K., Poland, and Ukraine, drilling is active, and showing some impressive results, although not much actual production thus far.

Also, as Europe is densely populated, there are industrial and environmental issues that can delay full and rapid exploitation such as has occurred in North America.

EU Nations Wish to Avoid Dependence on Russia

There is a big strategic, and also commercial reason that European nations will likely become more enthusiastic drillers: the wish to reduce an unhealthy reliance on one major supplier: Russia. The Ukraine and other European countries have had more than one cutoff of supply from pricing and payment disputes, and in mid-winter, too. No customer is comfortable in having only one supplier, and Russia also has a record of being a difficult and untrustworthy trading and investment partner, as BP (NYSE: BP) and Chevron (NYSE: CVX) can attest.

Environmental Trends Favor Gas Over Coal, Nuclear

Another reason that shale gas exploration will likely receive a warmer reception in Europe in the future is their longer-term environmental goals, which have not been -- and in practice cannot be -- satisfied by renewable energy initiatives and incentives. The governments of Germany, France, the U.K., and other European nations wish to downplay or eventually eliminate electricity production from coal plants, and from nuclear generators, too. The only rapid, cheap and readily available other sort of energy will be shale gas, unless they wish to become further dependent on Russia, Central Asia or the Middle East.

BofA Continues to Cut Workforce

The Wall Street Journal reported that Bank of America Corporation (NYSE: BAC) is yet again planning to cut jobs. The latest decision will lead to the elimination of about 400 employees in its high earning operations.

However, this is not part of Project BAC, under which BofA planned to remove about 30,000 workers and reduce expenses by $5 billion per year by 2014 in Phase 1.

The latest downsizing will mainly occur in BofA's commercial banking, investment banking and non-U.S. wealth-management units. These businesses had significantly expanded following the company acquisition of Merrill Lynch & Co. in 2009.

This time, the target employees are involved in BofA's most profitable businesses. It was the effort of these employees that Merrill Lynch became an important part of the company's turnaround story following the financial crisis.

However, BofA's decision to slash experienced workforce from its profitable businesses will aid the young and inexperienced investment-banking employees in gain more experience. Moreover, they can be positioned in any of the company's different industry sectors depending on need.

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