U.S. energy major Chevron Corporation (CVX) has signed an agreement with Polish state-controlled gas firm, PGNiG, to explore for shale gas in south-eastern Poland. The co-operation agreement is expected to prove beneficial for both the firms as it would speed up operations and lower the cost of exploration.
If the exploration phase sees a successful completion, it could lead to a joint venture (JV) between the parties, with a 50% interest each. This JV will act as an operator to four licenses – two from each of the parties involved. The cooperation arrangement may lead to a final agreement in 2014.
Poland plans to utilize its shale gas reserves to lower its import dependence on Russia. Big international companies like Chevron could provide the necessary expertise and funds to exploit these reserves. However, mixed drilling results and unclear regulations have forced large energy firms like ExxonMobil (XOM), Marathon Oil (MRO) and Talisman Energy (TLM) to withdraw from the country.
The Polish firm believes that a policy of openness would aid in establishing a partnership with the San Ramon, Calif.-based company. Chevron operates in Poland through its subsidiary Chevron Polska Energy Resources and owns and operates the four licenses – Frampol, Grabowiec, Krasnik and Zwierzyniec.
Chevron Corp. is one of the largest integrated energy companies in the world and has an impressive business model. Its current oil and gas development project pipeline is among the best in the industry, boasting large, multi-year projects. Additionally, Chevron possesses one of the healthiest balance sheets among peers.
However, due to its integrated nature, Chevron is particularly susceptible to downside risk from any weakness in the global economy. Moreover, we are also concerned about Chevron’s bloated capital spending.
Chevron currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
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