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Chevron to Sell Stake in Canada’s Duvernay Shale
02/06/2024
Chevron is selling its Canadian shale production operations as part of a wider plan to concentrate its investments on more profitable projects in the United States.
“Chevron is committed to safely delivering the affordable, reliable, ever-cleaner energy Canada and the world needs.“
Chevron Corp is selling its 70% stake in Alberta's Duvernay shale formation. The area, rich in unconventional hydrocarbons, extends over 245,000 net acres. The Duvernay assets have a production capacity of approximately 40,000 barrels of oil and gas daily. The estimated value of these assets is up to $900 million. Chevron first announced its intention to develop this area in 2017, following a three-year appraisal period. By the end of 2022, 243 wells in this field had been connected to production facilities.
Chevron's 2022 production in the area included 126 million cubic feet of natural gas and 17,500 barrels of condensate and natural gas liquids. Their extraction method involves horizontal drilling and hydraulic fracturing. Chevron believes this business holds substantial current value and growth potential, likely appealing to companies with similar portfolios.
Kuwait Foreign Petroleum Exploration Co.'s subsidiary, KUFPEC Canada Inc., owns the remaining 30% stake.
“The Duvernay is looking like a hot spot for this year so it’s not surprising that M&A is happening. Murphy Oil Corp, which holds 4,000 boepd of Duvernay production and sold a portion of its assets there for C$150 million ($111.3 million) last year, will likely watch Chevron’s sale process closely. If Chevron gets a good price I’d not be surprised to see Murphy selling.”
- Phil Skolnick, an analyst at brokerage Eight Capital
Expectations
Chevron expects a stronger portfolio post-merger to boost these asset sales.
Chevron has announced plans to sell assets worth up to $15 billion before taxes by 2028. This strategy was revealed when Chevron agreed to merge with Hess Corp. in October, a deal involving a $60 billion all-stock transaction that includes debt. This follows Chevron's acquisitions of Noble Energy Inc. and PDC Energy Inc. in 2020 and 2023.
The Hess acquisition is set to be finalized in June 2024. Chevron plans to allocate two-thirds of its 2024 upstream capital budget, approximately $14 billion, to its U.S. operations. This includes about $6.5 billion for tight assets, with $5 billion dedicated to the Permian Basin.
Additionally, Chevron has earmarked $1.5 billion for downstream capital expenditure.
“We’re maintaining capital discipline in both traditional and new energies.”
- Chief executive Mike Wirth of Chevron
In 2021, Shell PLC, a British company and Chevron's competitor, sold its Duvernay light oil position to Crescent Point Energy Corp., based in Calgary, Alberta. The sale to Crescent Point involved assets producing 30,000 barrels of oil equivalent per day and encompassed 450,000 net acres, with the deal valued at $707 million.
The Duvernay play is among Canada's leading shale regions. Other notable companies with substantial stakes in the area include Crescent Point and PetroChina's Canadian division. Recently, Athabasca Oil and Cenovus Energy entered into a joint venture to boost their operations in the play.
The field has experienced a significant increase in licensing activity and enhancements in productivity. The cost of drilling a well has reduced substantially, from as high as CAD 20 million ($14.85 million) per well a decade ago to between CAD$10 million and CAD$15 million currently.
About Chevron Corporation
Chevron Corporation, a global energy leader, reported a decrease in earnings in the third quarter of 2023, with $6.5 billion compared to $11.2 billion in the same period of 2022. Despite this, they returned a record $20 billion to shareholders, 27% higher than the previous year. The company is shifting its focus, evident in strategic acquisitions like PDC Energy, Inc., and a majority stake in ACES Delta, LLC, the largest green hydrogen production and storage hub in the U.S.
Chevron is refocusing its upstream investments, allocating over 75% of its capital to strategic areas such as U.S. shale basins, the Gulf of Mexico, the Eastern Mediterranean, Guyana, Australia, and Kazakhstan.
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2023 Closes with a Wave of Deals: Canada to Permian Basin
-Crescent Point Energy finalized its $1.9 billion purchase of Hammerhead Energy to expand operations in Alberta's Montney Shale -Two Canadian companies merged to increase their presence in Alberta's Kaybob Duvernay area -Ring Energy completed acquisition in the Permian Basin
Hess Corp. Increases Drilling Activity Before Chevron Takeover
Hess Corp. is in the final stages of a major sale to Chevron, with increased drilling and production in the Bakken region noted in the last quarter. Hess announced its fourth-quarter net production in the Bakken reached 194,000 barrels of oil equivalent per day (boe/d), a slight increase from the third quarter's 190,000 boe/d and a significant 23% rise from the 158,000 boe/d seen in the fourth quarter of the previous year. This growth is attributed to more drilling and the impact of the previous year's severe winter weather.
Kinetik Holdings recently announced a series of transactions in the energy sector. They struck a deal to buy Durango Permian infrastructure for $765 million. At the same time, they're selling their 16% share in the Gulf Coast Express Pipeline to ArcLight Capital Partners for $540 million. The total purchase cost includes $510 million in cash paid immediately and an additional $30 million that will be paid later, depending on whether they decide to expand further.
Recently, the Permian has seen significant acquisitions: Exxon Mobil purchased Pioneer Natural Resources for about $60 billion. Diamondback Energy's $26 billion deal to acquire Endeavor Energy Resources is currently on hold due to requests from the U.S. Federal Trade Commission. Occidental’s acquisition of CrownRock for $12 billion in the Midland.
EOG Resources is pushing boundaries in Ohio's Utica oil play and now drilling on the Sable pad, also located in Noble County. This site features the 3.7-mile lateral currently under construction. The company's first multi-well pads in the area Timberwolf and Xavier have each produced over 200,000 barrels of oil since their inception—Timberwolf in August and Xavier in October. A third site, the four-well White Rhino pad in Noble County, is also showing promising early results, according to Keith Trasko, EOG’s Senior Vice President of Exploration and Production, who noted the wells are performing as expected in their initial weeks.