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Will Chevron (CVX) Pull Out of Indonesian Deepwater Stake?

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Chevron Corporation CVX, one of the leading global integrated energy players, recently announced plans to sell its stake in the Indonesian Deepwater Development (‘IDD”) gas project. The plan is aligned with the company’s strategy to cut costs and streamline operations. Although the final call is yet to be taken, Chevron intends to exit some natural gas projects to prepare for long-term low prices.

Located in the Makassar Strait, IDD project encompasses the Bangka, Gendalo and Gehem gas fields. Collectively, IDD consists of two natural gas deepwater development projects — Bangka and Gendalo-Gehem. Chevron has a 62% interest in the Bangka project, while the U.S. supermajor owns nearly 63% stake in the Gendalo-Gehem project. IDD Stage 1 includes the Bangka development, which commenced production in August 2016. However, Stage 2 could not attract capital investment in Chevron’s global portfolio.  

The Indonesian government has been negotiating with Chevron and its partners, ENI SpA E and Sinopec (SNP - Free Report) , to revise the development plan for the next stage of the IDD project. In 2018, the government stated that Chevron had revised its investment for the second phase of development to $6 billion, down from the earlier guidance of $12.8 billion. In spite of the substantial spending cut, mainly attributable to technology improvements, the project’s output guidance was kept intact. But in September 2019, Indonesia’s oil and gas regulator SKK Migas noted that the company’s curtailed investment in IDD is likely to translate into lower-than-expected peak gas output.

Revised expected peak production for IDD is pegged in the range of 700-800 million standard cubic feet per day (mmscfd) compared with the initial estimate of over 1 billion cubic feet per day (bcfd), when the Gendalo and Gehem hubs start production. SKK Migas wants to meet the onstream target of 2025 for the two gas hubs and supply gas to the Bontang LNG plant in East Kalimantan. However, with Chevron set to pare back operations in Indonesia with the sale of its IDD stakes, the project’s future remains uncertain.

About Chevron Corporation

Chevron is an American multinational energy player, headquartered in San Ramon, CA. The company has presence in more than 180 countries. From upstream exploration and production to midstream transportation, power and trading to downstream manufacturing and retail, it is engaged in every aspect of oil, natural gas as well as geothermal energy industries. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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