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Chevron's China Gas Project Delayed

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According to Reuters, the Chuandongbei project, a venture of the U.S. energy giant Chevron Corporation (CVX - Free Report) and partner PetroChina Co. Ltd. (PTR - Free Report) , is facing delay due to disagreement between the two parties involved.

The $6.4 billion gas project – Chevron’s largest in China – is expected to produce 7.6 billion cubic meters of gas per year. However, its commencement has been postponed to the second half of the next year. Chevron had initially projected producing first gas by 2010. A few months back, PetroChina’s parent company, China National Petroleum Co. (CNPC), had anticipated production by end of 2013. But neither of the forecasts have borne fruit to date.

The two companies had entered into this 30-year deal in Dec 2007. Almost six years have passed since the agreement, but the parties are still in discussion over the developmental process of these fields. Being a high-pressure, high-sulphur development project, resultant technical complexity and high operational risks add to the delays.

The Chuandongbei project is a three-stage venture. The Chinese government has however, suspended the approval for the second phase of development amid the current delays, in order to drive the parties’ focus on completion of the first phase.

The entire project will comprise two sour gas processing plants and five natural gas fields that will have gathering systems and tie-ins to the plants. As per the companies, the project, located in the northeastern part of the Sichuan province, has around 176 billion cubic meters of proven reserves.

Chevron is the operator with a 49% stake in the project whereas PetroChina holds the remaining 51%.

Per the Reuters report, China Petroleum and Chemical Corp. (SNP - Free Report) aka Sinopec had completed a similar sour gas development project in about 32 months. The $10 billion Puguang project had yielded first gas in 2010. The sole ownership of the project by Sinopec had facilitated the smooth completion, according to officials associated with the project. 

Chevron currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider a better-ranked energy sector stock, SM Energy Company (SM - Free Report) that sports a Zacks Rank #1 (Strong Buy).

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