Chevron Announces 20% Plunge In Vaca Muerta Drilling Costs

Integrated major Chevron Corporation (NYSE:CVX) reported that cost of drilling wells at Vaca Muerta shale play have plunged by 20% in 2016, thereby enabling it and its partners to better meet their spending objectives.

The costs of drilling at the Loma Campana field in Argentina’s Vaca Muerta – location of the world’s second-biggest shale reserves – declined from $14 million to $11.2 million per well in the last three months of 2015. This, in turn, has pushed the joint venture of Chevron with YPF S.A. (NYSE:YPF) closer to the goal of drilling wells at less than $10 million each.

In 2013, Chevron had entered into an agreement with YPF to invest $1.6 billion in a drilling program at Vaca Muerta in the Neuquen province. Given the success of the program, the agreement was extended by another 35 years in 2014. So far, the joint venture has drilled around 400 wells. The performance of the wells has been impressive and has been compared with those in the U.S. – the nation with the largest shale reserves.

San Ramon, CA-based Chevron is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.

Chevron’s current oil and gas development project pipeline is among the best in the industry, with large, multi-year projects. Additionally, the company possesses one of the healthiest balance sheets among its peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.

However, the ongoing oil price slump has adversely affected the company’s earnings and cash flows, particularly at its upstream unit.

Chevron currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the energy sector include Sasol Ltd. (NYSE:SSL) and Braskem S.A. (NYSE:BAK) . Both these stocks sport a Zacks Rank #1 (Strong Buy).