Chevron U.S.A. Inc. - a subsidiary of energy major
) - entered into a 8-year joint development deal with
Cimarex Energy Co.
) for the Delaware basin acreage in Culberson County, Texas.
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Per the deal, both Chevron and Cimarex will develop 104,000 acres
which will be operated by Cimarex. Chevron will pay $60 million
for a 50% stake in Cimarex's Triple Crown gathering system and a
50% stake in the wells drilled during the ongoing year. The deal
also entails Chevron access to roads and utilities for the
development of the acreage.
The agreement will strengthen Chevron's position in the Delaware
basin and help in the implementation of the company's Permian
growth strategy. Chevron holds more than 1 million gross acres in
the Delaware basin and contains numerous stacked oil and wet gas
Chevron is one of the largest integrated energy companies in the
world and has an impressive business model. Its current oil and
gas development project pipeline is among the best in the
industry, boasting large, multi-year 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, being one of the largest integrated oil and gas
companies in the world, Chevron is particularly susceptible to
the downside risk from continued 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.
Chevron currently retains a Zacks Rank #3 (Hold), implying that
it is expected to perform in line with the broader U.S. equity
market over the next 1 to 3 months.
Meanwhile, there are other oil companies in the energy sector
that are expected to perform better in the short term. These
Renewable Energy Group Inc.
). Both the stocks sport a Zacks Rank #1 (Strong Buy).