IN THE WORLD OF BIG OIL, Royal Dutch Shell is often treated like the elephant in the room that investors want to ignore.
Shell’s questionable reputation isn’t entirely undeserved. Europe’s largest integrated oil company has been beleaguered by high costs as it struggled to increase oil-and-gas reserves after the 2004 accounting scandal forced the company to write down reserves.
Those woes were compounded by the deteriorating economic conditions, OPEC quota cuts and Nigerian tensions that disrupted production.
So it’s not a surprise that Shell’s U.S.-listed shares (ticker: RDSA) are underperforming peers’. Closing at $49.07 Wednesday, the class A American depositary receipts are down 39% over the past 12 months. That compares to the Dow Jones U.S. Integrated Oil & Gas Index’s 29% decline and Exxon Mobil’s (NYSE:XOM) 21% decline during that period.
But Shell’s fundamentals are improving. And with a stable 7% dividend yield that is triple Exxon’s, Shell is paying its investors handsomely to wait for that turnaround.
Crude-oil prices are rallying and operating costs should continue to fall over the next several months as work is completed on higher-priced contracts.
Shell is a particularly attractive based on a longer-term rebound in natural gas. It is the world’s largest player in liquefied natural gas (NYSEMKT:LNG). For the first time more than half of its production came from natural gas (50.6%) in the first quarter. Natural gas made up more than a third of Exxon’s 2008 production.[Partial Article]