Chevron Sells Stakes in Elk Hills Field in a Cash-Stock Deal

Chevron Corporation CVX, an integrated oil major, recently divested its stake in the Elk Hills field in California's San Joaquin Basin to the upstream player California Resources Corporation CRC, in a cash-stock deal. With the deal, California Resources secured full ownership in the historic Elk Hills field.

Per the deal, Chevron has offloaded its non-operated working interest of around 20-22% in the field for a cash consideration of $460 million along with 2.85 million issued shares of California Resources. In 2017, the divested region accounted for the production of 13,300 barrels of oil equivalent per day (Boe/d) — comprising 46% oil, 45% natural gas and 9% natural gas liquids — to Chevron.

Elk Hills field, encompassing 47,000 acres, includes 32 major producing zones, having approximately 8.5 billion barrels of oil equivalent in place. Last year, the field produced a total of 66,000 Boe/d from 3000 wells. Elk Hills, being the most significant asset of California Resources, contributed to a production of 53,000 Boe/d for the company last year.

The purchase of the remaining stakes in the field from Chevron is likely to be a prudent strategy for the California Resources, considering it to be a natural fit with almost no executing and operating risk involved. The acquisition is likely to be immediately accretive to California Resources. The company expects to gain around $5 million of annualized cost savings along with additional synergies of about $15 million within the next 18 months. Being the sole owner and operator of the Elk Hills field, California Resources is likely to earn cash inflows of $100 million annually at current commodity prices. Overall, the transaction will lead to cash flow and synergy benefits, and also provide the company with long-term growth opportunities.

In February 2018, California Resources also entered into a midstream joint venture deal with a private equity group, Ares Management, to own the Elk Hills power plant near Bakersfield. California Resources secured an equity investment of $50 million from the Ares-led investor group, which had made an investment of $750 million in the joint venture.

Zacks rank and Key Picks

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

Chevron Corporation Price

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Some better-ranked players in the energy space include Northern Oil and Gas, Inc. NOG and Continental Resources, Inc. CLR, both sporting a Zacks Rank #1.

Northern Oil and Gas delivered an average positive earnings surprise of 175% in the trailing four quarters.

Continental Resources delivered an average positive earnings surprise of 64.93% in the trailing four quarters.

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