Chevron Signs MOU with YPF - Analyst Blog

By Zacks Equity Research,

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Chevron Corporation ( CVX ) inked a memorandum of understanding (MOU) with South American energy firm, YPF SA to evaluate and explore the region's conventional and unconventional resources in the province of Neuquen. However, none of the companies disclosed the financial terms of the agreement.

The companies intend to appraise the acreage spanning over Vaca Muerta basin that is estimated to hold approximately 23 billion barrels of oil. San Ramon, California-based Chevron and Argentina's state-controlled YPF will also be involved with the exploration of oil from mature fields with the use of advance technology.

Argentina - which holds the world's third largest shale reserves after China and the U.S - is highly pepped up to develop the country's oil and natural-gas sector with the help of foreign collaboration over the next five years.

However, this deal has faced a lot of opposition from Spanish oil company Repsol SA, which used to be YPF's parent company. Earlier, in April, this year, the authority of Argentina had expropriated 51% of YPF from Repsol - which currently holds 12% stake in YPF.

Following this move, Repsol demanded a compensation of about $10 billion from the Government of Argentina, which is yet to be paid.

Hence, Repsol has threatened to take a legal action against this agreement to prevent any third party to benefit from the illegally confiscated properties.

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.

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 by the company's high level of capital spending, which may result in reduced returns going forward.

We expect the stock to perform in line with the broader market and maintain our Neutral recommendation. Chevron - the second-largest U.S. oil company by market value after ExxonMobil Corp. ( XOM ) - currently retains a Zacks #3 Rank (short-term Hold rating).

CHEVRON CORP (CVX): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: CVX , MOU , XOM

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