San Ramon, CA-based energy giant Chevron Corp. (CVX) said that it is getting out of the shale gas business in Lithuania by divesting its assets in the Baltic nation. The company closed its office in capital Vilnius and sold its 50% interest in local oil and gas exploration company, LL Investicijos.
Chevron acquired the stake in 2012 for LTL 57.8 million (EUR 16.7 million) to tap the significant accumulation of extractable shale gas in Lithuania. According to the Eastern European country’s geological authority, Lithuania has local reserves of nearly 60 billion cubic meters of natural gas. However, extraction of the same – found beneath layers of porous rock formations called shale – is quite difficult and Chevron was supposed to provide the technologies and the know-how for this. Moreover, Lithuania – being fully dependent on Russia’s Gazprom for natural gas supply – wanted to lower energy costs and dependence on Russian supplies.
But things started to look bleak after Chevron pulled out from the shale gas extraction tender in 2013 citing an uncertain legal framework over taxation and environmental issues. The American behemoth’s withdrawal from Lithuania suggests that it did not see the situation improve and finally decided to pull the plug.
Chevron is one of the six super major oil and gas companies in the world and the second-largest energy firm in the U.S. behind Exxon Mobil Corp. (XOM). As a vertically-integrated oil entity, it is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.
Its current oil and gas development project pipeline is among the best in the industry, boasting large, multiyear projects. Additionally, Chevron possesses one of the healthiest balance sheets among peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.
However, due to its integrated nature, Chevron is particularly susceptible to the downside risk from any weakness in the global economy. We are also concerned by the company’s high level of capital spending, which may result in reduced returns going forward.
As a result, 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.
Some better-ranked stocks in the integrated energy space are Brazil-based Braskem S.A. (BAK) and Asia’s PetroChina Co. Ltd. (PTR), both of which hold a Zacks Rank #2 (Buy).
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