Chevron to Buy Shale Gas Assets

U.S. oil major Chevron Corporation (CVX - Analyst Report) has entered into a deal with South Australian oil and gas producer Beach Energy Ltd. to acquire shale gas assets. This deal marks the first shale investment in Australia by Chevron.

Per the deal, Chevron will initially have a 30% working interest in block PEL 218 in South Australia and an 18% working interest in block ATP 855 in Queensland. Both the blocks cover about 810,000 acres in the Cooper Basin.

Chevron will pay $36 million in cash and cover $95 million in costs for the South Australia consent and $59 million in cash for the Queensland acreage. Beach Energy will get up to $349 million in 2 stages, spanning several years, for the stake sale in the 2 gas blocks. The deal – which is subject to approval from the local government and the Foreign Investment Review Board – also provides Chevron with an option to increase its interest to 60% in PEL 218 and 36% in ATP 855.

The Cooper Basin is considered one of the best for commercial production of shale gas in Australia. Santos Ltd. was the first to produce the same in Cooper Basin in August last year, from its Moomba-191 well.

Chevron is already building liquefied natural gas (LNG) plants in Western Australia (Gorgon and Wheatstone) with a joint capacity of about 25 million tons per annum.

We believe that this acquisition will boost Chevron’s growth prospects in Australia by adding to its already significant gas interests in the country.

The company currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.

Chevron’s current oil and gas development project pipeline is among the best in the industry, targeting volume growth of 20% by 2017 – more than twice the rate of growth from 2003 to 2010.

However, the company conducts operations in many countries. As such, the company is exposed to risks associated with doing business abroad. Such risks include embargoes or expropriation of assets, exchange rate risks, terrorism and political/civil sentiment.

But there are certain other companies in the oil industry that are expected to perform well in the coming 1 to 3 months. These include Royal Dutch Shell plc (RDS.B - Snapshot Report) with a Zacks Rank #1 (Strong Buy), as well as Total SA (TOT - Analyst Report) and Repsol SA (REPYY) with Zacks Rank #2 (Buy).