U.S. energy behemoth Chevron Corp. (CVX) has approved a multibillion-dollar deepwater project in the Gulf of Mexico (“GoM”), just days after the federal government decided to lift its drilling moratorium in the region. The company plans to invest approximately $7.5 billion to develop two large fields – Jack and St. Malo, located within 25 miles of each other, approximately 280 miles southwest of New Orleans in water depths of 7,000 feet.

Chevron’s decision to go ahead with the offshore drilling complex, the largest investment in the GoM since British giant BP plc’s (BP) oil rig disaster in April, underscores the importance of the region to western oil companies. The Jack/St. Malo fields (estimated to contain a total of 500 million recoverable oil equivalent barrels) are situated in the Lower Tertiary area in the deepwater GoM, a new geological frontier with huge resource potential that the industry is just starting to exploit.

The facility, which is designed to produce 170,000 barrels of oil and 42.5 million cubic feet of natural gas per day, is set to go on stream in 2014. Chevron is the operator of the project, with a 50% working interest at Jack and 51% at St. Malo.

It has partnered with Norwegian companies StatoilHydro ASA (STO) and A.P. Moeller-Maersk A/S – each holding a 25% share for Jack, while Chevron’s allies in St. Malo are Statoil with a 21.5% interest, Brazil’s Petrobras S.A. (PBR) with a 25% interest, ExxonMobil Corp. (XOM) of the U.S. with a 1.25% interest; and Eni SpA (E) of Italy with a 1.25% interest.

San Ramon, California-based Chevron is one of the largest publicly traded oil and gas firms 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.

Chevron shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

 
CHEVRON CORP (CVX): Free Stock Analysis Report
 
Zacks Investment Research