UPDATE 2-Chevron sells stake in Canadian shale field to Kuwait

Mon Oct 6, 2014 11:43am EDT
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Oct 6 (Reuters) - Chevron Corp said on Monday it would sell a 30 percent stake in its Canadian oil shale holdings to Kuwait's state-owned oil company for $1.5 billion.

The deal with Kuwait Foreign Petroleum Exploration Co helps Chevron reduce production risk and gives it more capital to increase drilling in Alberta's Duvernay shale formation, one of North America's largest shale deposits.

The deal, valued at about $15,000 per acre, boosts land valuations in the region and should help increase drilling, a step that will likely reduce production costs to about $12 million per well, down from about $15 million to $20 million currently, analysts at investment bank Tudor Pickering Holt said in a note to clients.

Chevron's Canadian subsidiary has exploration leases for about 330,000 net acres (1,335 square km) in the Duvernay shale formation. The area is located about 124 miles (200 km) northwest of Edmonton, Alberta.

The deal also creates a partnership for appraisal and development of liquids-rich shale resources in the Kaybob area of the Duvernay, Chevron said.

After the deal closes in November, Chevron Canada will remain the operator and will hold a 70 percent interest in the project.

The deal price includes a portion of Chevron Canada's share of future capital costs for the joint venture.

Allen Good, senior equity analyst at Morningstar, said the divestment was not a comment on the quality of Chevron's Duvernay assets but rather a way to cut spending at a time when the company has a number of major projects underway.   Continued...