U.S. energy behemoth Chevron Corporation (CVX) announced the discovery of two new offshore natural gas sites – Pinhoe-1 and Arnhem-1 – in Western Australia’s Carnarvon Basin. The discoveries, the eighteenth and nineteenth by Chevron off the Australian coast since mid-2009, builds on the integrated oil and gas giant’s leading position in this hydrocarbon-rich area.
Drilled to a total depth of 13,396 feet (4,083 meters), the Pinhoe-1 well encountered 197 feet (60 meters) of net gas pay. The find is situated in the WA-383-P permit area, approximately 124 miles (200 kilometers) north of Exmouth Plateau area of the Carnarvon Basin.
On the other hand, the Arnhem-1 discovery – that lies in the WA-364-P permit area, roughly 180 miles (290 kilometers) north of Exmouth – was drilled to a total depth of 9,557 feet (2913 meters). The well came across 149 feet (45.5 meters) of net gas pay.
Chevron Australia has a 50% operated interest in both the prospects, with the other partner being the subsidiary of Royal Dutch Shell Plc (RDS.A). We believe that the latest exploration success will boost Chevron’s growth prospects in Australia by adding to its already significant gas interests in the country (through majority holdings in the Gorgon and Wheatstone natural gas developments).
San Ramon, California-based Chevron is one of the largest publicly traded oil and gas firms in the world, based on proved reserves. It is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals and other energy-related businesses.
Chevron shares currently retain a Zacks #3 Rank, which translates into a short-term 'Hold' rating. We are also maintaining our long-term 'Neutral' recommendation on the stock.
Chevron’s current oil and gas development project pipeline is among the best in the industry, boasting large and multi-year projects. Additionally, the second-largest U.S. oil company by market value after ExxonMobil Corporation (XOM) possesses one of the healthiest balance sheets among its peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.
However, due to its integrated nature, Chevron is particularly susceptible to the downside risk from any weakness in the global economy. We are also concerned by the company’s high level of capital spending, which may result in reduced returns going forward.
Considering these factors, we see the stock performing in line with the broader market.
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