U.S. energy giant Chevron Corporation (CVX), through its Australian subsidiary, has awarded a $2.3 billion mechanical, electrical and instrumentation work contract to Netherlands-based Chicago Bridge & Iron Company (CBI). The contract is dedicated for the development of Chevron’s Gorgon Project in Australia.
Per the terms of the deal, Chicago Bridge & Iron will execute structural, mechanical, piping, electrical, instrumentation and commissioning support for the construction of three liquefied natural gas (LNG) trains on Barrow Island. The scope of work also includes setting up of related utilities and a domestic gas processing and compression plant.
In early May, Chevron Australia Pty Ltd had entered into a Sales and Purchase Agreement with Japan's JX Nippon Oil and Energy Corporation to supply about 0.3 million tons per annum LNG from the Gorgon Project to the latter over a period of 15 years. Later that month, Chevron awarded an A$50 million pipe stool manufacturing contract to Singapore listed AusGroup for the expansion of the same venture.
The Gorgon gas fields, off the coast of Western Australia, are estimated to contain 40 trillion cubic feet of deposits with an expected economic life of at least 40 years from the time of start-up. The $37 billion project is expected to produce approximately 15 million tons of LNG per year, with the first gas production expected in 2014.
Apart from Chevron, which holds a 47% interest and acts as the operator, the Australian subsidiaries of Royal Dutch Shell plc (RDS.A) and Exxon Mobil Corp. (XOM) –– each having a 25% stake –– also form a part of the project. The remaining 3% is controlled by Osaka Gas, Tokyo Gas and Chubu Electric Power.
With an upbeat industry outlook on LNG for the next few years, we believe that the Gorgon project will be successful in serving the Asia-Pacific region. The venture will also lend a strong strategic position to Chevron and its associated partners in the rapidly developing economies of China and South East Asian countries.
San Ramon, California-based Chevron is engaged in oil and gas exploration and production, refining and marketing of petroleum products, as well as manufacturing of chemicals and other energy-related businesses.
We believe that Chevron exhibits an impressive business model with an array of oil and gas development projects, a healthy financial profile and revised asset portfolio. Hence, we maintain our long-term Outperform rating on the stock.
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