Oil major Chevron (NYSE:CVX) announced that it had entered into an agreement to sell an equity stake in its Australian Wheatstone project to Tokyo Electric Power Co. (TEPCO).  TEPCO has also agreed to purchase more LNG output from the project as a part of the agreement.
The deal highlights the increasing demand for LNG from Japanese utilities and the emergence of Australia as the major supplier of LNG fuel to the fast growing Asian market. The Wheatstone project is expected to go into production by 2016. Chevron is one of the largest investors in Australia’s natural gas rush and in involved in multiple giant projects including the Wheatstone and Gorgon projects. The company also plans to further expand the output from these projects.
We have a $109 price estimate for Chevron, which is at a 5% premium to its current market price.
With the latest deal, TEPCO has increased its total purchases from Wheatstone to about 4.3 Million tonnes per annum (mtpa),  which is about 47% of the project’s current production capacity. With rising demand for LNG from major Asian markets, Chevron is considering a proposal to expand the project to about 25 mtpa.
Japanese utilities have been ramping up purchases of LNG after the Fukushima disaster forced them to reduce reliance on nuclear power. Chevron has also managed to sell Wheatstone’s output to other Japanese customers such as Tohuku Electric Power. The latest sale helped the company lock in another 0.4 mpta in long term contracts. Till last month, it was estimated that the company had managed to lock in about 80% of the project’s output in such sale contracts.
According to the deal TEPCO will also gain an 8% stake in the Wheatstone gas processing plant and a 10% stake in the associated gas field licences.  With a number of multi-billion dollar LNG export facilities coming up in the country, Australia is set to quadruple its current natural gas production capacity of about 20 mtpa. Most of the new production is targeted at Asian economies, where demand for natural gas is expected to show a sharp growth over the next few years. Chevron has made huge bets on the trend towards natural gas in the region. As the projects enter production, the company should significantly expand its international gas production.
- RPT-Chevron to sell Wheatstone equity, more LNG to TEPCO, Reuters [↩] [↩] [↩]