Oil major, Chevron Corporation (CVX) has entered into a deal with Venezuela’s national oil company, Petróleos de Venezuela S.A. (“PVDSA”) to finance the Petroboscan heavy crude joint venture in the western part of the country.
Per the deal, Chevron will lend $2 billion to increase production in the Boscan field from 107,000 barrels per day (bpd) to 127,000 bpd by 2019. Chevron holds a 40% stake in the joint venture, while the remaining 60% is held by PVDSA. The loan plus the interest will be repaid in 2026.
Chevron also has a stake at eastern Venezuela’s Carabobo 3 project in the Orinoco extra-heavy oil belt. The Orinoco belt is believed to have the world's largest crude deposits.
San Ramon, Calif.-based Chevron is one of the largest publicly traded oil and gas firms in the world, based on proved reserves. It is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals and other energy-related businesses.
Chevron’s current oil and gas development project pipeline – targeting volume growth of 25% by 2017 – is among the best in the industry. The line-up includes big Australian LNG projects (Gorgon and Wheatstone) as well as deepwater developments in the U.S. Gulf of Mexico.
Additionally, the company’s financial flexibility and strong balance sheet are real assets in this highly uncertain economy. Chevron is in excellent financial health, with $17 billion in cash on hand and an investment-grade credit rating, with a debt-to-capitalization ratio of just over 9%.
However, Chevron’s production growth profile depends on the timely development of upstream projects, almost all of which have inherent risk factors. Time and cost overruns on these programs may lead to lower returns going forward.
Keeping the pros and cons in mind, Chevron is expected to perform in line with the broader U.S. equity market over the next one to three months. This is validated by a Zacks Rank #3 or Hold rating, which the company holds.
Meanwhile, there are other oil companies in the energy sector that are expected to perform better in the short term. These include InterOil Corporation (IOC), EPL Oil & Gas Inc. (EPL) and Renewable Energy Group Inc. (REGI). All the three stocks sport a Zacks Rank #1 (Strong Buy).
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