Chevron Overseas Congo Ltd, a subsidiary of energy giant Chevron Corporation (CVX), has recently contracted Norwegian oilfield services firm Subsea 7 for $600 million. Per the agreement, Subsea 7 will install and supply subsea components for the development of Lianzi field, offshore Congo and Angola.
The technical aspect of the contract includes a 12-inch wet, insulated production flow-line with direct electrical heating. This will set a record for the deepest electrically-heated pipe.
Part of the designing and fabrication will be done in Angola’s capital city, Luanda. The additional work will be carried out in Lobito by Subsea 7’s Angolan joint venture. At Subsea 7’s Luanda base, all flow-lines will be spooled to the Seven Oceans rigid reel-lay ship.
Management at Subsea 7 is of the opinion that this contract will fit its capacity for large scale projects and the company is looking forward to deliver this project safely.
San Ramon, California-based Chevron displays a strong portfolio of global projects, targeting volume growth of around 20% by 2017. Additionally, Chevron possesses one of the healthiest balance sheets among its peers – which include BP plc (BP), ExxonMobil Corp. (XOM) and Royal Dutch Shell plc (RDS.A) – that helps it to capitalize on investment opportunities with the option to make strategic acquisitions.
However, due to its integrated nature, Chevron is particularly susceptible to the downside risk from any weakness in the global economy. We are also concerned by the company’s high level of capital spending, which may result in reduced returns going forward.
As such, we see the stock performing in line with the broader market and maintain our long-term Neutral recommendation, supported by a Zacks #3 Rank (short-term Hold rating).
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