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Chevron Nigeria Limited – a subsidiary of the U.S. energy behemoth, Chevron Corporation (CVX - Analyst Report) – is planning to divest its ownership in three shallow water oil blocks, off the country’s shore.

Chevron holds a 40% interest in blocks – Oil Mining Leases (OML) 52, OML 53 and OML 55. The remaining 60% is owned by Nigerian National Petroleum Corp. (“NNPC”) – the state oil corporation of Nigeria.

This divesture would be in addition to Chevron Nigeria’s planned sale of 40% interest in OML 83 and OML 85 announced last week. Oil and gas reserves of the total 5 blocks are expected to be more than 250 million barrels of oil and over 3.5 billion cubic feet of gas.

In Nigeria, oil theft and lack of support from local people have increased the cost of operation. As a result, many oil majors like Royal Dutch Shell plc (RDS.A - Analyst Report), Eni Spa (E - Analyst Report) and Total SA (TOT - Analyst Report) have sold their onshore and offshore assets in Nigeria in the last few years.

Chevron, in cooperation with NNPC, is working in 13 shallow water blocks in Nigeria. Chevron Nigeria had a daily production of roughly 238,000 net barrels of crude oil and 165 million cubic feet of natural gas in 2012.

The oil major’s current oil and gas development project pipeline – targeting volume growth of 25% by 2017 – is among the best in the industry.

However, Chevron’s production growth profile depends on the timely development of upstream projects, almost all of which have inherent risk factors. Time and cost overruns on these programs may lead to lower 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.
 

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