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Chevron in Angolo-Congo Venture

Zacks Equity Research

Chevron Overseas Congo Limited – an affiliate of Chevron Corporation (CVX) – announced its plans to develop the Lianzi field. Located 65 miles away from the shore and at a water depth of about 3,000 feet, the field lies in a zone between the Republic of Congo and the Republic of Angola.

The development project – worth $2.0 billion – involves the installation of subsea production system and a 27-mile electrically heated flowline. These will be used to transport oil from the field to the Benguela Belize Lobito Tomboco platform, located in Angola Block 14.

The project – which is expected to produce its first oil in 2015 – will have a production capacity of maximum 46,000 barrels of oil equivalent per day, upon completion.

Chevron’s arm in Congo will act as the operator of the Lianzi field with a 31.25% interest, while Total SA (TOT) controls a 36.75% stake. The remaining stakes are shared among Eni SpA (E) (10%), Angolan energy firm Sonangol (10%), the Republic of Congo National Oil Company – SNPC (7.5%) and Portugal-based Galp Energia (4.5%).

This is Chevron’s first venture in the Republic of Congo and the company looks to establish a strong foothold in West Africa – one of the richest hydrocarbon basins in the world.

Both Congo and Angola will likely provide support to the cross-border project. The Lianzi field will also act as the source of encouragement for the development of other cross-country fields.

San Ramon, California-based Chevron displays a strong portfolio of global projects, targeting volume growth of around 20% by 2017. 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 regarding 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 maintain our long-term Neutral recommendation, supported by a Zacks #3 Rank (short-term Hold rating).

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