Chevron Corp. is selling a nearly one-third stake in its Duvernay Shale project in west-central Alberta to a unit of Kuwait Foreign Petroleum Exploration Co. (KUFPEC) for $1.5 billion.
The total purchase price to be paid to Chevron Canada Ltd. for a 30% interest to KUFPEC Canada Ltd. includes cash to be paid at closing plus a carry for part of the joint venture's (JV) future capital costs. The agreement creates a partnership to appraise and develop shale resources in around 330,000 net acres in the Kaybob area of the Duvernay.
"This sale demonstrates our focus on strategically managing our portfolio to maximize the value of our global upstream businesses and is consistent with our partnership strategy," said Chevron Senior Vice President Jay Johnson. "The transaction provides us an expanded relationship with a valued partner. It also recognizes the outstanding asset base we have assembled."
Once the transaction is completed, which is expected in November, Chevron Canada would remain the operator.
"We remain encouraged by the early results of our exploration program and view the Kaybob Duvernay as an exciting growth opportunity for the company," said Jeff Shellebarger, president of Chevron North America Exploration and Production Co.
Chevron has assembled its gassy Duvernay position over the past few years. Last year the oil major added close to 68,000 net acres through a purchase from Alta Energy Luxembourg S.a.r.l. that was said to be worth close to $1 billion (see Shale Daily, Aug. 6, 2013).
Chevron began its Duvernay development in 2011. Since its exploration program began, the Canadian unit has drilled 16 wells with initial production rates of up to 7.5 MMcf/d of gas and 1,300 b/d of condensate. A pad drilling program recently was initiated to evaluate and optimize reservoir performance, as well as reduce execution costs and cycle times.
Although the Duvernay had been touted as one of the best prospects for unconventional gas when it caused a prospecting blitz about four years ago, its results have been a mixed bag (see Shale Daily, Oct. 2). It still is considered an emerging play, according to some experts.
The decision by Chevron to sell down a portion of its holdings was considered a positive by Tudor, Pickering, Holt & Co. Analysts said Monday the deal implies a transaction value of around $15,000/acre, well above their modeling of $5,000-10,000. They now expect an announcement by Duvernay prospector Talisman Energy Inc., which has talked up a JV for its Duvernay holdings by early 2015.
Still, the read-through is limited, said analysts, because "industry activity to date has been relatively limited with 100 wells drilled...We believe wells have yet to be optimized, as operators are now just starting to target extended lateral development (9,000-10,000 feet) and upside fractures in the play (2,000 pounds/feet). Further, well costs are a key to driving returns, but there may be a line of sight toward $12 million/well target with pad development." Wells now cost $15-20 million each, they noted.