Chevron Corporation (NYSE:CVX) inks a deal with a Kuwait state oil company

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By Thomas Copeland on October 10, 2014 Intl News

Chevron Corporation (NYSE:CVX) has decided to sell some of its investments in the Canadian oil shale holdings to reduce its over the top capital finances. The price offered was 1.5 billion and apparently a state oil company in Kuwait is interested. This divestment is actually a bridge to focus on more important areas such as liquefied natural gas, deepwater and shale/tight development. Chevron Corporation (NYSE:CVX)’s rising annual expenditures is causing them great distress; depletion in the Canadian oil stakes will save them from the capital costs building up.

Chevron Corporation (NYSE:CVX)’s annual sales revenue is around 230 billion which they have to manage through subsidiaries and affiliates for which Chevron Corporation (NYSE:CVX) provides administration, technical and financial support. Chevron Corporation (NYSE:CVX)’s reputation of being the leading energy company after Exxon makes it one of the most prestigious companies in the U.S.

Chevron Corporation (NYSE:CVX) will be selling off its interest in the Chevron Corporation (NYSE:CVX) Canada Limited by 30 percent out of its total 330,000 net acres to KUFPEC Canada – a foreign subsidiary of Kuwait foreign exploration Company. The price has been set at 1.5 billion, also including Chevron Corporation (NYSE:CVX)’s share of future capital costs for the joint affiliation.

Chevron Corporation (NYSE:CVX) emphasizes a lot on Duvernay, which is the largest shale plays in North America; acreage there defines long term growth prospects for Chevron Corporation (NYSE:CVX). Chevron Corporation (NYSE:CVX), since the initiation of the exploration program, has drilled 16 wells with the initial productivity of 7.5 million cubic feet of natural gas and 1,300 barrels of condensate per day. Chevron Corporation (NYSE:CVX) acquired 86,000 acres in the Duvernay shale formation the previous year and is now selling off 30% of the total.

Soaring capital expenditures is a volatile issue and Chevron Corporation (NYSE:CVX) has been dealing with in for the past 5 years.

They have been spending around 37 billion per year in capital expenditure, which was 17 billion in 2009. Over 90 percent of the 37 billion is spent on high end projects. Their ongoing LNG project in Australia has cost them a lot, because of the rise in labor cost; the gross cost estimate has risen by 45 percent since 2009 to 54 billion.

Chevron Corporation (NYSE:CVX) plans to spend 2 billion less this year on leasing rigs, floating oil platforms, installing pipelines and repairing oil-refineries. Chevron Corporation (NYSE:CVX) is aiming to reverse the trend of the over flowing expenditures by scoping down on certain projects which will result in more cash flows.

The Kuwait deal will help ease off some pressure from Chevron Corporation (NYSE:CVX), which was building from quite some time. Also the deal will give way to other lucrative offerings on which Chevron Corporation (NYSE:CVX) can focus on. The question that is a worry for Chevron Corporation (NYSE:CVX) is that what if it still cannot built up a healthy cash flow statement for its vary investors who have been constantly worried about the huge cash inflows.