U.S. energy behemoth Chevron Corp. (CVX) and its partners have announced the final investment decision for the massive Wheatstone liquefied natural gas ("LNG") venture in Australia following the receipt of necessary government approvals. The company said that its Australian subsidiary will proceed with the construction of the project immediately.
Chevron holds a 73.6% operated interest in the $29 billion Wheatstone development, with the other partners being Apache Corp. (APA), Kuwait Foreign Petroleum Exploration Co. (“KUFPEC”) and Royal Dutch Shell plc (RDS.A).
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 – located near Onslow on the Pilbara coast – will have an initial annual capacity to produce 8.9 million metric tons of LNG, with the first shipment expected in 2016.
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 Wheatstone 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 is currently a Zacks #3 Rank (Hold) stock, implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months. We are also maintaining our long-term Neutral recommendation on the stock.
Chevron Corp. is the second most valuable U.S. oil company after ExxonMobil Corp. (XOM) and has an impressive business model. Its current oil and gas development project pipeline is among the best in the industry, boasting large, multiyear projects. Additionally, Chevron possesses one of the healthiest balance sheets among its peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.
However, due to its integrated nature, Chevron is particularly susceptible to the downside risk from continued weakness in the global economy. We are also concerned by the company’s high level of capital spending, which may result in reduced returns going forward. As such, we see the stock performing in line with the broader market.
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