The Australian subsidiary of Chevron Corporation (CVX) recently struck a preliminary deal with Japanese utility firm Chubu Electric Power Company Incorporated, under which the former will sell liquefied natural gas (LNG) from its natural gas project in Australia to the latter.
Per the Heads of Agreement, Chubu will receive 1 million tons per annum (MTPA) of LNG for almost the next 20 years from the prominent Wheatstone project. However, none of the companies have divulged the financial aspects of the transaction.
Chubu has a long standing relationship with Chevron. Back in 2009, Chubu inked a Sales and Purchase Agreement with Chevron to buy 1.44 MTPA of LNG for 25 years from another natural gas project, Gorgon.
Located about 7.5 miles west of Onslow, off Western Australia’s Pilbara coast, the Wheatstone is one of the country’s most ambitious resource projects. The venture is proposed to be built with an annual output capacity of 25 million metric tons of LNG.
The initial phase of the project will see the construction of two processing units, known as trains, with a combined capacity of 8.9 million tons of LNG a year and a domestic gas plant.
Chevron has entered into multiple deals with Japanese and South Korean companies to sell a major portion of LNG from the project. With the recent Chubu deal, the company covered more than 70% of Wheatstone’s LNG under long-term contracts with customers.
Chevron acts as the operator of the project with a 72.14% interest, while the remaining stake is shared by Apache Corporation (APA) (13%), Kuwait Foreign Petroleum Exploration Co. (7%), Royal Dutch Shell plc (RDS.A) (6.4%) and Kyushu Electric (1.46%). The Wheatstone project is expected to come online by 2016.
We believe that the Wheatstone project as well as the Gorgon unit will contribute immensely in providing considerable economic benefits such as employment, government revenue and local business opportunities across the country. Both the ventures, upon completion, will hold a leadership position among natural gas and LNG suppliers in the Asia-Pacific belt.
We maintain our long-term Neutral recommendation on Chevron shares. The company currently retains a Zacks #3 Rank (short-term Hold rating).
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