Chevron To Offload Permian Basin Holdings To Sabinal Energy

U.S. energy giant Chevron Corporation (NYSE:CVX) recently announced plans to divest around 64,500 net acres in the Permian Basin to a private upstream player Sabinal Energy, LLC. This marks the first acquisition by Sabinal Energy, formed in 2016. Pricing terms of the deal remain undisclosed.

The properties which are to be vend, are located in the Central Basin Platform of the prolific Permian play and have a production capacity of 7,500 barrels of oil equivalent per day. The assets complement the existing assets of Sabinal Energy and provide various organic growth opportunities. The company also plans to strike additional acquisition deals in the region to strengthen its production and cash flows.

With the deal, Chevron will offload 5% of Permian properties. The transaction is in sync with Chevron’s plans to monetize around 200,000 non-core acres in the Permian play.

The agreement is in line with Chevron’s strategy to improve its cash flow in 2017. In the first six months of 2017, Chevron generated $8.9 billion operating cash flow and shelled out around $12.9 billion in capital expenditures and dividends. Thus the company is seeking avenues like asset sales to plug the deficit.

Chevron is focusing on divestment opportunities to exit non-competitive projects and cost and capex reduction. This in turn will provide a more competitive and leaner business model for the company. The company divested $2.8 billion assets in 2016. The latest deal will help the company to progress toward its $10 billion divestment goals in 2017.

Additionally, the recent agreement will help the company to focus on balancing its global portfolio with its long-term business priorities. Further, it will allow the company to slash costs and streamline business models amid plunging oil prices.

Zacks Rank and Key Picks

Chevron is one of the largest publicly traded oil and gas companies in the world, based on proved reserves. It 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 currently carries a Zacks Rank #3 (Hold). Over the year, shares of Chevron have rallied 17% against roughly 11% gain recorded by the industry.

Some better-ranked players in the energy space include Lonestar Resources US, Inc. (NASDAQ:LONE) and Range Resources Corporation (NYSE:RRC) and Rex Energy Corporation (NASDAQ:REXX) . While Lonestar Resources and Range Resources sport a Zacks rank #1 (Strong Buy), Rex Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lonestar Resources delivered an average positive earnings surprise of 39.71% in the trailing four quarters.

Range Resources delivered an average positive earnings surprise of 51.82% in the trailing four quarters.

Rex Energy delivered an average positive earnings surprise of 6.65% in the trailing four quarters.

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