Chevron Corp. (CVX) – the second-biggest U.S. energy company – entered into a deal to sell 4.1 million tons of liquefied natural gas (LNG) per annum from its Wheatstone venture in Australia. The company said that its Australian subsidiary has signed a long-term agreement in this regard with Japanese utility behemoth Tokyo Electric Power Co. (also known as TEPCO).
 
As per the A$90 billion ($82.5 billion) contract, potentially the largest for any Australian export industry, Chevron would provide the LNG to TEPCO for a period of up to 20 years. The agreement would also see TEPCO acquire 15% of Chevron’s equity share in the Wheatstone gas field licenses and an 11.25% interest in the onshore gas processing facilities to be developed by Chevron.
 
The Wheatstone gas fields, off the coast of Western Australia, are estimated to contain 4.5 trillion cubic feet of gas deposits. Chevron said that the venture will have an initial annual capacity to produce 8.6 million tons of LNG, with the first shipment expected in 2016. A final decision on the project is expected in 2011. Chevron holds a 75% operated interest in the $20 billion project, with the other partners being Apache Corp. (APA) and Kuwait Foreign Petroleum Exploration Co. (KUFPEC).
 
We believe that the sales contract represents an important milestone in Chevron’s efforts to commercialize its share of LNG from the Wheatstone project and is a key step towards a final investment decision by the company. Chevron expects further sales of Wheatstone LNG in the coming months.
 
The Tokyo Electric agreement follows Chevron’s multiple deals to sell nearly 4.5 million tons of LNG from its Gorgon LNG venture (also in Australia) to South Korean energy companies GS Caltex and Korea Gas Corp., as well as two Japanese companies, Osaka Gas and Tokyo Gas. Incidentally, Japan and South Korea are the world’s top two importers of LNG. In September, Chevron, along with its partners ExxonMobil Corp. (XOM) and Royal Dutch Shell PLC (RDS.A), agreed to develop the Gorgon field, the world’s largest LNG plant.
 
Also, the business environment for LNG continues to remain robust, with demand likely to grow at around 8−10% annually over the next few years in all major markets. The Gorgon and the Wheatstone projects provide 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 firm 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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