Shell plc SHEL, the British oil and gas supergiant, stated that it plans to acquire a 30% interest in the Conifer exploration prospect through its subsidiary Shell Offshore. The Conifer prospect in the Gulf of America is operated by BP plcBP, which will retain the remaining 70% stake. In addition, BP has stated that Shell has agreed to purchase a 50% stake in the Tupinambá exploration block in Brazil's Santos Basin. BP will retain the operatorship ofthe Tupinambá block.

BP Brings Shell on Board to Advance Key Exploration Prospects

BP highlighted that the Gulf of America and Brazil are both important regions for the company. The Santos Basin offshore Brazil is home to some of the largest pre-salt discoveries made by companies like Petrobras. Earlier this year, BP had also mentioned the Bumerangue discovery in Brazil, which could be its largest discoveryin 25 years. Under Brazil's second Production Sharing Permanent Offer cycle in December 2023, the company secured the Tupinambá block. Drilling operations for the Tupinambá exploration well are anticipated to begin soon.

On the other hand, the Gulf of America has always been central to BP's upstream portfolio. The company initially secured four offshore leases in the Conifer exploration prospect in August 2023 through Lease Sale 259. Later, BP secured a fifth lease in the deepwater exploration prospect after the BBG-1 Lease Sale. Per the agreement, Shell Offshore Inc. will enter all five leases as a 30% partner, while BP will retain its operatorship. The Conifer exploration well is scheduled to be drilled in 2027.

Partnerships Help Balance Exploration Upside and Capital Risks

The agreements allow BP to retain ownership in both prospects while bringing in an experienced operator to share the risks associated with their development. BP has stated that this arrangement also aligns with its disciplined capital allocation strategy. For Shell, the agreements are beneficial as it enables the company to gain exposure to potentially significant discoveries in two prolific oil-producing regions.

Zacks Rank & Key Picks

Both SHEL and BP currently carry a Zacks Rank #3 (Hold).

Some better-ranked stocks from the energy sector are  Valero Energy VLO and  Galp Energia SGPS SA GLPEY. While Valero sports a Zacks Rank #1 (Strong Buy), Galp Energia carries a Zacks Rank #2 (Buy) at present. You can see  the complete list of today's Zacks Rank #1 stocks here.

Valero Energy is a leading refining player with a robust network of 14 refineries and a combined high-complexity throughput capacity of 3 million barrels per day, which distinguishes it from other independent refiners. The company's refineries have a combined Nelson Complexity Index of 11.5, which implies that they can process a wide variety of feedstocks, convert them into higher-value products and shift product yields according to market conditions.