Chevron and Partners Sell More LNG

The Australian affiliates of Chevron Corporation ( CVX - Analyst Report ) and Apache Corporation ( APA - Analyst Report ) along with other partners have inked a non-binding deal with Japan’s Tohoku Electric Power Company Incorporated (Tohoku). However, the financial terms of the deal were not disclosed.

Per the terms of the Heads of Agreement, the companies will supply about 1 million tons per annum (MTPA) of liquefied natural gas (LNG) from the Wheatstone Project in Australia to Tohoku, over a period of 20 years.

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. The Wheatstone project is expected to come online by 2016.

Chevron acts as the operator of the project with a 72.14% interest, while the remaining stake is shared by Apache(13%), Kuwait Foreign Petroleum Exploration Co. (7%), Royal Dutch Shell plc ( RDS.A - Analyst Report ) (6.4%) and Kyushu Electric (1.46%).

Over the last one year, Chevron and partners have entered into multiple deals with Japanese and South Korean companies to sell a major portion of LNG from the project. With the recent Tohoku deal, more than 80% of Wheatstone’s LNG is under long-term contracts with customers.

We believe that the Wheatstone project coupled with the other major Gorgon venture will provide 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 recommendations on Chevron, Apache and Shell shares. The companies currently retain a Zacks #3 Rank, which translates into a Hold rating for a period of one to three months.