Chevron to Drill in Sierra Leone

Chevron (SL) Ltd. – an affiliate of Chevron Corporation (CVX - Analyst Report) – announced its plan of exploring two deepwater blocks, in the offshore region of African nation – Sierra Leone.

Spanning over acreage of nearly 2,100 square miles, the blocks are located between 75 miles and 110 miles to the southwest of the capital city – Freetown. The two blocks – SL-08A and SL-08B – have been put together to form one concession and are at average water depths of 4,900 feet to 9,800 feet.

The subsidiary of Chevron – with 55% interest – will act as the operator of the venture. The domestic units of Noble Energy (NBL - Analyst Report) and Odye Limited controls a respective 30% and 15% stake in the blocks.

The Sierra Leone National Oil Company has a 15% back-in option in the project at the final investment decision stage.

Chevron management remains highly upbeat about its contribution in developing the energy sector of Sierra Leone and stated that this collaboration will broaden the company’s portfolio of assets in Africa and will pave way for further exploration opportunities. In early August, Chevron announced plans to develop the Lianzi field – its first venture in Congo.

San Ramon, California-based Chevron is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.

The company – with an impressive business model – exhibits a pipeline of large, multi-year projects. Additionally, Chevron possesses one of the healthiest balance sheets among its peers, which helps it to capitalize on investment opportunities with the option to make attractive acquisitions.

However, due to its integrated nature, Chevron is particularly susceptible to the downside risk from any weakness in the global economy. We are also concerned about business risks associated with operations in oversea areas, delays and cost overruns in various projects and the company’s high level of capital spending, which may result in reduced returns going forward.

As such, we see the stock performing in line with the broader market and maintain our long-term Neutral recommendation. Chevron, currently retains a Zacks #3 Rank (short-term Hold rating).