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Chevron U.S.A. Inc. – a subsidiary of energy major Chevron Corporation (CVX - Analyst Report) – entered into a 8-year joint development deal with Denver-based Cimarex Energy Co. (XEC - Snapshot Report) for the Delaware basin acreage in Culberson County, Texas.

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 plays.

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 include InterOil Corporation (IOC - Snapshot Report) and Renewable Energy Group Inc. (REGI - Snapshot Report). Both the stocks sport a Zacks Rank #1 (Strong Buy).
 

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