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Chevron (CVX) Gears Up for First Shale Development in Canada


Integrated energy company Chevron Corporation CVX recently announced that its Canadian unit is progressing with its shale play development in the East Kaybob region located in Duvernay formation of west-central Alberta. It will be the company's first shale play development in Canada.

Of the 330,000 acres in the formation, Chevron Canada holds 70% operating stakes, where it plans to start development in about 55,000 acres of the liquid-rich Duvernay. It has been almost eight years since the company registered its presence in Duvernay and is now one the biggest landholders in the basin. Chevron used its experience of operating in the North American shale assets during appraisal drilling for the project. The company has yet to provide the financial details of the project, which is expected to come online during the second half of 2019.

Midstream company Pembina Pipeline Corp. PBA is expected to invest C$290 million to create an infrastructure that will be able to ship and process gas and condensate.

The Canadian oil industry, which is ruled by the oil sands of northern Alberta, has witnessed around $23 billion worth of divestments this year from several oil companies like Royal Dutch Shell plc RDS.A, ConocoPhillips COP and others after oil prices fell during the first half of the year.

However, Canadian shale plays – like Duvernay and Montney – continue to remain attractive to players like Chevron as it is much cheaper to drill and complete oil wells in these formations compared to the costly oil sands. Apart from the assets in the Duvernay formation, Chevron has stakes in the Liard and Horn River basins located in Western Canada.

About the Company and Zacks Rank

San Ramon, CA-based Chevron is one of the largest publicly traded oil and gas companies in the world, based on proved reserves. The company is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses. Chevron, in its present form, resulted from the 2001 merger between Texaco and Chevron Corporation. Chevron’s operations are divided into two main segments: Upstream and Downstream.

In the third quarter, Chevron generated $5.4 billion in operating cash flow, while shelling out around $5.2 billion in capital expenditures and dividends. This led to around $200 million of excess cash flows, something that the company achieved for the first time since 2012. As a result of Chevron's focus on planning and execution, the company continues to reduce its operating costs with underlying expenses down almost 5% year to date compared with 2016. Cash capital expenditures for the first nine months of the year are also down 30%.

Chevron targets to grow volume by 4-9% in 2017. This is largely dependent on few big projects. However, sudden and unforeseen damage may reduce the company's planned net increase in output. In particular, Chevron's high-profile Gorgon LNG development in Australia is suffering from mechanical issues that may restrict its ramp-up.

Chevron has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

Chevron has lost 0.6% year to date against 4.1% growth of its industry.

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