Chevron U.S.A. Inc. – an affiliate of Chevron Corporation (CVX) – entered into an agreement with Chesapeake Energy Corporation (CHK) for the acquisition of certain acreage in the Delaware Basin. However, none of the companies disclosed the financial terms of the deal.
Spanning nearly 246,000 net leasehold acres in New Mexico – a part of the Permian Basin – the properties exhibit a net daily production level of 7,000 barrels of oil equivalent. The production capacity has the potential to expand significantly over the next few years.
Chevron currently controls about 700,000 net acres in the Delaware Basin – comprising quite a few oil and wet gas plays put together deep within thousands of feet of hydrocarbon-bearing rock. The company’s asset base in the region includes the Avalon Shale and the Bone Spring Sands.
The to-be acquired assets will form a part of Chevron's operated and non-operated existing Delaware Basin operations.
The deal – pending customary regulations and approvals – will likely be completed in the coming 30 days.
Following this acquisition, Chevron will have a substantially large holding in the resource rich and emerging Permian Basin that is expected to contribute immensely for the growth of the company’s North American activities.
Headquartered in California, San Ramon, Chevron is one of the leading energy companies in the world with an impressive business model. Its current oil and gas development project pipeline is among the best in the industry, boasting of large and multi-year projects.
Additionally, Chevron possesses one of the healthiest balance sheets among its 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 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.
As such, we see the stock performing in line with the broader market and therefore maintain our long-term Neutral recommendation, supported by a Zacks #3 Rank (short-term Hold rating).
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