Chevron Canada Limited, an affiliate of the San Ramon, CA-based energy giant Chevron Corp. (CVX), has entered into an agreement with KUFPEC Canada Inc. to sell 30% of its stake in Duvernay shale play, located in west-central Alberta. The transaction is valued at $1.5 billion and will expectedly close in Nov 2014.
Chevron still remains the operator of the assets with 70% interest. This agreement has led to creation of a joint venture partnership, in which both the parties will work toward development of the 330,000 net acres in the Kaybob area in the play.
According to the company, early exploration results from the acreage located in this promising North American shale play have been encouraging. With 16 wells already drilled, Chevron has witnessed initial well production rates of 7.5 million cubic feet of natural gas and 1,300 barrels of condensate per day.
Chevron is one of the largest publicly traded oil and gas companies 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.
The company’s current oil and gas development project pipeline is among the best in the industry, boasting large, multi-year projects. Additionally, Chevron has one of the healthiest balance sheets among peers, which helps it to capitalize on investment opportunities with the option of making strategic acquisitions.
However, due to its integrated nature, Chevron is particularly susceptible to downside risk from any weakness in the global economy. We are also concerned about the company’s high level of capital spending, which may result in reduced returns going forward.
Currently, Chevron carries a Zacks Rank #3 (Hold). Meanwhile, one could consider better-ranked players from the broader energy sector like EnLink Midstream Partners, LP (ENLK), Superior Energy Services, Inc. (SPN) and Enbridge Energy Management LLC (EEQ). All these stocks sport a Zacks Rank #1 (Strong Buy).
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