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CHEVRON CORPORATION (CVX)
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Chevron Starts Producing LNG at Second Wheatstone Processing Line

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06/15/2018 | 06:18am CEST

By Robb M. Stewart

MELBOURNE, Australia--Chevron Corp. (CVX) has begun production at the second of two processing units at its Wheatstone project on Australia's northwestern coast, cementing its position as one of the biggest suppliers of supercooled natural gas to Asia.

The milestone announced Friday draws a line on billions of dollars invested by the U.S. energy giant in recent years on two large liquefied natural gas projects that struggled with cost overruns and delays. It also will mark a shift in focus to output from construction, as demand for the cleaner-burning fuel continues to rise.

At full capacity, Chevron estimates that Wheatstone will account for about 6% of LNG output in the Asia-Pacific region, with a single cargo capable of powering Japan for about nine hours.

The US$34 billion Wheatstone development on Western Australia's Pilbara coast has an annual production capacity of 8.9 million metric tons of LNG, plus a domestic gas plant. Chevron and its partners approved construction of the project in late 2011, but the first LNG shipment from the initial processing unit, or train, only started in October 2017, months after the 2016 target.

"We've been for nearly a decade been on a robust investment program and growing our LNG portfolio, and the anchor for that is of course is our two Australian projects," said Stephen Green, Chevron's president of Asia-Pacific exploration and production.

The company hasn't publicly said when it anticipates a return on its investment in Australia, but Mr. Green said both projects were modeled against a range of scenarios and over a long period to clear investment hurdles set by the company. Wheatstone is expected to produce for at least 30 years and the offshore Gorgon project, which started production in early 2016, has an estimated 40-year-plus life.

"As we view Gorgon and Wheatstone today and the performance we're seeing and the increases in performance improvement underway and expected over the coming years, we are very happy we made these investments," Mr. Green said.

Chevron for the first three months of the year logged its strongest quarterly earnings in three and a half years, thanks in part to an all-time quarterly production record for the company including 69 LNG cargoes shipped from Australia, where long-term supply deals underpin 90% of its output.

With production at the second line at Wheatstone, Chevron now operates five such trains in Australia, including three at the US$54 billion Gorgon project. The build-out has been part of an about US$200 billion investment spree in the last decade by international and local companies that has positioned the country to overtake Qatar as the world's biggest exporter of LNG by 2019.

The surge in LNG production from Australia, the U.S. and elsewhere has outpaced growing global demand for the fuel in recent years, although energy consultancy Wood Mackenzie estimates a supply shortfall to emerge early next decade.

In late-April, Mark Nelson, Chevron's vice president of midstream, strategy and policy, said that as the market rebalances there is an opportunity to lift capacity at Gorgon and Wheatstone and work through bottlenecks in output. "We are focused on ramp up, efficient operation and then building our way into leveraging the existing infrastructure in Australia," he said.

Chevron views Wheatstone as a hub for natural gas in Western Australia, drawing gas through 140 miles of pipelines from one of the country's largest offshore platforms to a plant where the fuel is chilled to minus 260 degrees Fahrenheit before it is shipped in tankers. Chevron owns just over 64% of the project, Kuwait Foreign Petroleum Exploration Co. and Australia's Woodside Petroleum Ltd. each have stakes of 13% and Japan's Kyushu Electric Power Co. and Jera Inc. control the remainder.

Write to Robb M. Stewart at [email protected]

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Financials ($)
Sales 2018 172 B
EBIT 2018 21 377 M
Net income 2018 15 834 M
Debt 2018 25 340 M
Yield 2018 3,58%
P/E ratio 2018 15,28
P/E ratio 2019 15,18
EV / Sales 2018 1,54x
EV / Sales 2019 1,57x
Capitalization 240 B
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Mean consensus OUTPERFORM
Number of Analysts 20
Average target price 143 $
Spread / Average Target 14%
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Managers
NameTitle
Michael K. Wirth Chairman & Chief Executive Officer
Patricia E. Yarrington Chief Financial Officer & Vice President
Joseph C. Geagea EVP-Technology, Projects & Services Divisions
Ronald D. Sugar Lead Independent Director
Enrique Hernandez Independent Director
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