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Chevron & Chubu in LNG Deal

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The Australian subsidiaries of the U.S. oil major Chevron Corporation (CVX) inked a binding long-term Sales and Purchase Agreements (SPAs) with Japanese utility firm Chubu Electric Power Company Inc.

Per the deal, Chevron, along with Apache Corporation (APA) and Kuwait Foreign Petroleum Exploration Company, will provide 1 million tons per annum (:MTPA) of LNG to Chubu for up to 20 years.

Chevron acts as the operator of the project with a 64.14% interest, while the remaining stake is shared by Apache (13%), Kuwait Foreign Petroleum Exploration Co. (7%), Royal Dutch Shell plc (RDS.A) (6.4%) and some other companies.

The agreement further strengthens Chevron’s longstanding relationship with Chubu – one of the world’s largest LNG customers. Moreover, the San Ramon, California-based company expects the Wheatstone facility to serve the growing demand for a safe and reliable source of energy in the Asia Pacific region.  

Located about 7.5 miles west of Onslow, Western Australia, Wheatstone is one of the country’s most ambitious resource projects. The development will have a domestic gas plant and two LNG trains with a combined capacity of 8.9 million tons per annum.  

Moreover, Chevron holds equity interest of 80.17% in the Wheatstone and Iago fields. Roughly, 80% of the total feedgas of the Wheatstone Project is supplied by the fields.

Chevron is one of the largest publicly traded oil and gas companies 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. The company divides its operations into three main segments: Exploration and Production; Manufacturing, Products, and Transportation; and Other Businesses.

Chevron’s financial flexibility and strong balance sheet are real assets in this highly uncertain economic period.

On the flip side, Chevron’s production growth profile depends on the timely development of upstream projects, almost all of which have inherent risk factors. Time and cost overruns on these programs may lead to lower returns, going forward.

Chevron currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

One firm in the energy sector that is expected to significantly outperform the equity markets in the next one to three months is Helmerich & Payne Inc (HP). The stock carries a Zacks Rank #1 (Strong Buy).

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