U.S. energy behemoth Chevron Corp. (CVX) has got the green light for conducting oil and natural gas exploratory drilling in the Gulf of Mexico (GoM). The approval by the U.S. regulators is the second for Chevron in the region since British giant BP plc’s (BP) oil rig disaster in April last year.
As a reminder, on April 20, 2010, offshore driller Transocean Inc’s (RIG) ultra-deepwater Horizon drilling platform, contracted to BP, sank following an explosion while operating in the U.S. GoM off the coast of Louisiana.
The incident killed 11 workers and spewed more than 200 million gallons of crude in what is touted as the worst oil spill in U.S. history. Subsequently, a moratorium was imposed on offshore drilling in the region at water depths of more than 500 feet, which was lifted on October 12, 2010.
Chevron’s exploration plan will see the supermajor resume drilling the ‘Buckskin’ prospect at 6,594 feet of water in Keathley Canyon Block 785, located 190 miles southeast of Houston.
Chevron began initial drilling on the well in May 2010 but was forced to stop shortly thereafter when the Obama administration imposed a deepwater drilling ban because of the oil spill. The revised permit – the fourteenth approved by the federal agency since the deepwater Horizon rig explosion – will now allow the company to complete the well in the offshore reservoir.
According to the U.S. Interior Department, which oversees offshore drilling, the project has been given the go-ahead only after the fulfillment of strict safety and environmental requirements for offshore operations that have been imposed in the aftermath of the BP oil spill.
San Ramon, California-based Chevron is the second-largest U.S. oil company by market value after ExxonMobil Corp. (XOM). 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 shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. However, we are maintaining our long-term Outperform recommendation on the stock.
With the economic rebound strengthening and oil prices rallying, we expect integrated oil companies like Chevron Corp. to continue growing revenue and earnings over the next few quarters. Apart from the economic recovery, the company’s recent results have also benefited from its operational and production efficiency and contributions from large, multiyear growth programs.
Chevron has been able to boost returns and remain competitive by embarking on aggressive cost reduction initiatives, exiting unprofitable markets and streamlining the organization. We believe that the company offers meaningful long-term upside potential for investors.
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