Yesterday, Chevron Corp. (CVX) – the second-biggest U.S. energy company — entered into a deal to sell 1.5 million tons of liquefied natural gas (LNG) per annum from its Gorgon venture in Australia. The company said that its Australian subsidiary has signed a long-term agreement in this regard with South Korea government-owned Korea Gas Corp. (also known as KOGAS).
As per the contract, Chevron would provide the LNG to Korea Gas for a period of 15 years, with an option to extend the deal for another five years. The value of the deal, potentially the largest long-term LNG deal ever signed between Australia and South Korea, has been estimated at about A$30 billion ($26 billion).
Chevron holds a 50% operated interest in the A$43 billion ($37 billion) Gorgon development, with the other partners being ExxonMobil Corp. (XOM) and Royal Dutch Shell PLC (RDS.A). Earlier this week, the project was given the final go-ahead by the joint venture partners following the receipt of the necessary government approvals.
The Gorgon gas fields, off the coast of Western Australia, are estimated to contain 40 trillion cubic feet of gas deposits and have an expected economic life of at least 40 years from the time of start-up. Chevron said that the venture will have an annual capacity to produce 15 million tons of LNG, with the first shipment expected in 2014.
The Korea Gas agreement follows Chevron’s last week’s multiple deals worth A$70 billion ($60 billion) to sell nearly 3 million tons of LNG from the project to another South Korean energy company, GS Caltex and two Japanese companies, Osaka Gas and Tokyo Gas. Incidentally, Japan and South Korea are the world’s top two importers of LNG.
We believe that the sales contracts represent an important milestone in Chevron’s efforts to commercialize its share of LNG from the Gorgon project. The company expects further sales of Gorgon LNG in the coming months. ExxonMobil and Royal Dutch Shell have already signed deals to sell much of their share of Gorgon production to Asian importers, including PetroChina Co. Ltd. (PTR).
San Ramon, California-based Chevron is the fourth-largest publicly traded oil and gas company 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.
We currently rate Chevron shares as Neutral.
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