Chevron’s New Australian Endeavor – Analyst Blog

Integrated oil and gas giant Chevron Corporation (CVX) announced the discovery of natural gas through an exploration drilling rig in Australia’s Carnarvon Basin. This hydrocarbon basin is situated off the western coast of Australia.

 

The Sappho-1 exploration well is located at about 87 miles northwest of Onslow. The well was drilled to a depth of 15,406 feet and found approximately 246 feet of net gas pay. The Australian unit of Chevron holds 50% working interest in the Sappho-1 well with the remaining stake being equally shared by the Australian subsidiaries of Royal Dutch Shell plc (RDS.A) and Exxon Mobil Corp. (XOM).

 

This happens to be Chevron’s second successful find of natural gas in Carnarvon Basin in July, following the discovery of offshore natural gas site (Clio-3) in the first week of this month.

 

We appreciate Chevron’s focus on successful exploration drilling activities in northwest Australia. This will boost the company’s long-standing aim of setting up a leading natural gas business to provide energy to Australia and the Asia-Pacific region. This will also contribute significantly to the Gorgon and Wheatstone natural gas developments projects.

 

We remain impressed with Chevron’s strong pipeline of development projects and noteworthy recent exploration successes, which will likely drive strong second quarter 2010 results. However, the company’s exposure to oil and gas prices, which are inherently volatile and subject to complex market forces, keeps us on sidelines.

 

Therefore, we retain our long-term Neutral recommendation on the stock, supported by the short-term Zacks #3 Rank (Hold) rating.