Chevron Corp. (CVX), the second-biggest U.S. energy company, has entered into a deal to sell 300,000 tons of liquefied natural gas (LNG) per annum from its Gorgon venture in Australia. The company said its Australian subsidiary has signed a long-term agreement with Japanese refiner Nippon Oil Corp.
As per the contract, Chevron would provide LNG to Nippon Oil for a period of 15 years. The value of the deal has been estimated at about $3 billion. Chevron Australia approximately holds a 47% operated interest in the A$43 billion ($37 billion) Gorgon development. The other partners are ExxonMobil Corp. (XOM) and Royal Dutch Shell PLC (RDS.A).
The Gorgon gas fields, off the coast of Western Australia, are estimated to contain 40 trillion cubic feet of gas deposits with 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. In September 2009, the project was given the final go-ahead by the joint venture partners following the receipt of necessary government approvals.
As of now, the Gorgon project comprises three production trains and a gas plant, to be built in the Barrow Island nature reserve. Within the next 12-18 months, the three partners are expected to take a call on expanding the number of trains to five.
The Nippon Oil agreement follows Chevron’s multiple deals to sell nearly 6.0 million tons per annum of its share from the Gorgon LNG venture to South Korean energy companies GS Caltex and Korea Gas Corp., as well as three Japanese companies, Osaka Gas, Tokyo Gas and Chubu Electric Power Co. 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 most of their share of the Gorgon production to Asian importers, including PetroChina Co. Ltd. (PTR).
The business environment for LNG remains robust, with demand likely to grow at around 8−10% annually over the next few years in all major markets. The Gorgon project provides Chevron and its partners an attractive strategic position for serving the fast-growing economies of China and India, plus other Asian countries.
San Ramon, California-based Chevron is one of the largest publicly traded oil and gas firms 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.
Chevron Corp. is currently rated as a Zacks Rank #3 (Hold) stock, meaning that it should perform relatively in line with the overall market over the next 1-3 months.
The company’s last quarterly earnings report was its second consecutive earnings beat. The company is expected to report earnings of $1.73 per share during the fourth quarter (with an upside of $0.06), down from $2.14 a year ago. Last time out, it beat by 14.4%, and over the last month, analysts have raised their estimates for the about-to-be-reported quarter by 3.6%.
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