Chevron Corporation (CVX - Free Report) , 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 - Free Report) , 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.
Some better-ranked players in the energy space include Northern Oil and Gas, Inc. (NOG - Free Report) and Continental Resources, Inc. (CLR - Free Report) , 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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