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Chevron (CVX) Decides to Stall Funding of Kitimat LNG Project

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Chevron Corporation (CVX - Free Report) recently announced its intention to halt the funding of its Kitimat LNG project as it was unable to find a prospective buyer. This decision, however, does not affect the company's other assets in Canada.

Chevron-Canada announced in December 2019 that it will sell its 50% stake in the proposed Kitimat LNG Project in British Columbia. The decision was in sync with the company’s portfolio optimization strategy aimed at maximizing returns and driving value. Also, Kitimat LNG was included in a US$2.2-billion Chevron asset impairment charge in 2019. However, the company failed to obtain a potential buyer for the project.

Despite having final investment decisions suspended, Kitimat LNG was the only other major LNG initiative apart from Royal Dutch Shell’s LNG Canada project that appeared to still have a potential of being built.

The Kitimat LNG plant is located in the northern part of the British Columbia province of Canada. Chevron has Woodside Energy Limited of Australia as its 50-50 joint-venture partner in the Kitimat LNG project. Natural gas producing assets in northeast B.C.'s Liard and Horn River Basins, the proposed 471-kilometer Pacific Trail Pipeline, and plans for an LNG liquefaction and export terminal at Bish Cove near Kitimat are all part of the project.

Recently, Chevron drafted a plan wherein it will maintain disciplined spending, double its targeted savings from its Noble Energy deal and set new carbon-intensity reduction goals. Chevron’s capital-efficient investment plan and cost-effective measure is expected to double its return-on-capital employed. This, in turn, will likely lead to free cash flow growth of more than 10% and a budget as low as $14 billion per year through 2025.

Chevron CFO Pierre Breber believes that “the path to increase return on capital employed is straightforward — invest in only the highest-return projects and operate cost efficiently.”

Also, recently, Chevron entered into an agreement with Noble Midstream Partners LP to obtain the latter’s remaining outstanding assets in an all-stock deal.

The contract was announced within six months of Chevron’s acquisition of Noble Energy, Inc, the parent organization of the master limited partnership (MLP). This transaction is considered last year’s one of the biggest deal wins in the oil industry. It is scheduled to be completed in the second quarter of 2021 and is subject to customary approvals.

Company Profile

Chevron is one of the largest publicly traded oil and gas companies in the world with operations spread to almost every corner of the globe. This San Ramon, CA-based company is fully integrated, which is indicative of its participation in every energy-related aspect, right from oil production to refining and marketing.

Zacks Rank & Key Picks

Chevron currently sports a Zacks Rank #1 (Strong Buy). Another top-ranked player in the energy space is Matador Resources Company (MTDR - Free Report) , presently flaunting a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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