The Mighty Chevron Corporation Is Seeking Help in Canada

Chevron Corporation (NYSE: CVX) is reportedly seeking investors to help fund its Canadian developments.

| More on:
The Motley Fool

The Chevron Corporation (NYSE: CVX) made US$5.7 billion dollars last quarter alone. However, according to a Reuters report it is seeking investors for upwards of US$1.5 billion in equity investments to help fund the development of the Duvernay Shale formation in Canada.

This isn’t the only Canadian asset Chevron needs help funding; it’s also looking for a replacement for Apache Corporation (NYSE: APA), which is bailing on the Kitimat LNG project. The curious question is that with all its billions in profits, why is Chevron seeking help in Canada?

A look at where Chevron wants help

Chevron completed its initial exploration of the Duvernay Shale last fall. The 12-well drilling program produced encouraging results as well performance exceeded the company’s expectations. Because of this the company called the discovery “a foundation for future growth in Canada.” It then transitioned to a two-rig drilling program this year to optimize well and completion design. Now, it’s looking for help as it really begins to develop the asset.

It’s not the first company to seek a partner in the Duvernay. EnCana Corporation (TSX: ECA)(NYSE:ECA) sold a 49.9% interest in its Duvernay Shale position to a Chinese energy company to help it fund the development of the play. The $2.18 billion deal paid EnCana $1.18 billion at closing with another $1 billion payable over four years as a drilling carry to fund half of EnCana’s development capital.

Meanwhile, Talisman Energy Inc (TSX: TLM)(NYSE: TLM) and Athabasca Oil Corp (TSX: ATH) are both said to be seeking a joint venture partner to fund the development of a portion of their Duvernay Shale position. While both are seeking money to help fund drilling, that’s not the only reason all want partners in the Duvernay.

It’s all about the risk

The reason all of these companies are looking for a development partner is to reduce some of their risk. While the Duvernay Shale looks like a world-class liquids play, it’s still very early in its development and might not turn out as good as the initial results suggest.

The energy industry has been burned many times before with a recent example being the Utica Shale in the U.S., which simply hasn’t lived up to the lofty early expectations. This is why Chevron is seeking an equity partner to “diffuse the development risk for the next phase of the project” according to Reuters report.

There is a good reason why it wants to diffuse the risk. Chevron has struggled in recent years with skyrocketing project costs. Its Gorgon LNG project in Australia, for example, has seen its development cost surge from US$37 billion to an estimated US$54 billion. In fact, it is the surging cost of LNG projects that’s behind Apache’s decision to bow out of both its LNG joint ventures with Chevron, including Canada’s Kitimat LNG project. Apache is seeking more predictable growth than LNG can offer it because of risk with unpredictable costs.

Investor takeaway

Oil and gas development is risky. Not only are the commodities volatile but so are the costs to develop these projects. That’s why few energy companies go it alone when it comes to early stage development projects. So it’s no surprise to see Chevron seeking investors to help fund its developments in Canada as the company knows all too well about the risks of development oil and gas projects. It’s simply prudent risk management for an early stage shale play.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Hand arranging wood block stacking as step stair with arrow up.

1 Dirt-Cheap Canadian Stock That Could Soar in a Recession

Fairfax Financial Holdings (TSX:FFH) was built for times like these, when almost everything else seems to be falling in the…

Read more »

edit Person using calculator next to charts and graphs
Metals and Mining Stocks

Pick From 2 Lithium Stocks for Your Next Big Investment

Two TSX lithium stocks are the next high-growth stocks as the electric revolution intensifies.

Read more »

TFSA and coins
Stocks for Beginners

TFSA Investors: 3 Stocks You Should Buy Today

Are you looking for stocks to add to your TFSA? Here are three top stocks to buy today!

Read more »

Stocks for Beginners

2 High-Growth Stocks to Buy Hand Over Fist This Week

You might not get a better bargain on these two Canadian high-growth stocks if you miss them buying right now.

Read more »

value for money
Tech Stocks

3 Tech Stocks Trading for a Significant Discount

These tech stocks have corrected quite a lot, despite the strength in their business, making them attractive long-term bets.

Read more »


3 Reasons BCE Is 1 of the Best Stocks to Buy Now

In this environment, it's crucial to ensure you own only the very best stocks, which is why BCE is one…

Read more »

Dots over the earth connecting the world

Global Recession 2022: Hype or Reality?

Whether the current market slump will herald another recession is too soon to tell, but you can still take advantage…

Read more »

ETF chart stocks
Stocks for Beginners

2 Interesting ETFs to Buy for Passive Investing

ETFs are a simple and low-cost way for investors to invest passively for the long haul. Currently, QQQ and XRE…

Read more »