San Ramon, CA-based energy giant Chevron Corp. (CVX) has decided to offload its renewable energy affiliate – Chevron Energy Solutions Co. – to OpTerra Energy Services Inc. Backed by Los Angeles-based private equity firm Oaktree Capital Group LLC (OAK), OpTerra specializes in energy-savings projects and clean energy systems.
The Aug 29 transaction – whose price has been undisclosed – is part of Chevron’s efforts to shift away from the renewable space and concentrate mainly on the lucrative Upstream and Downstream segments. The company already sold a 48-person business unit that used to manufacture renewable projects and energy-savings retrofits for government bodies, while pulling out of an initiative to build and finance utility-size renewable energy projects.
Despite these retreats, Chevron maintained that clean energy remains an integral part of its portfolio and it remains committed to develop energy-efficient projects.
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.
A better-ranked pick in the integrated energy space would be Asian giant PetroChina Co. Ltd. (PTR), which holds a Zacks Rank #1 (Strong Buy).