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A Smart Move From Chevron That Investors Shouldn't Miss

June 20, 2014 | About:
Vinay Singh

Vinay Singh

5 followers

Chevron's (CVX) profits exceeded expectations, though its performance was affected by cheaper oil prices. The company’s future looks bright because its long-awaited liquefied-natural-gas project in Angola, one of Africa's top oil-producing countries, will kick-start this year. The fact that this long-awaited project will finally take off is enough to boost investor confidence despite a sluggish oil market.

I would like to point out that Chevron announced better-than-expected profits in the first quarter despite a very unfavorable market, and that it will begin its LNG project in Angola. These two facts are enough to convince me that Chevron will perform well this year and beyond.

Chevron’s results

Increasing its production has been a problem for Chevron, which continually operates in some of the most troubled regions of the world, such as Iraq and Nigeria. With that in mind, it is important to view its LNG project in Angola from a particular perspective.

Chevron's interests in the Angola LNG project are represented by Cabinda Gulf Oil, a company that is wholly owned by the former. It has a 36.4% stake in the project while Sonangol, an oil company based in Angola, has a 36.4% interest. BP and Total each have 13.6% stakes. The project aims at commercializing Angolan natural-gas resources by drilling, treating and transporting the fossil fuel to a liquefaction plant located in Angola's Zaire province.

The sheer magnitude of the project makes me shake my head with disbelief. The project aims to produce 5.2 million metric tons a year of LNG. The project is expected to help Chevron further expand its oil business in Angola and produce LNG for both domestic use and export.

The Angolan LNG project has been delayed for almost a year and there were no signs of any progress until March. At that time, an LNG carrier sailing to Angola prompted a flurry of speculations that shipments may soon begin. The Soyo was built in 2011 and has traveled across Greece, Kuwait, South Korea, Norway, Spain and other countries. Recently found at Malaysia, it was bound for Angola.

The ship's voyage to Angola suggests that Chevron is seriously looking at transporting Angolan LNG for commercial use. Angola’s LNG may be exported to energy-hungry nations in Asia such as Japan, China and India.

Interestingly, Anadarko Petroleum will begin to sell its Mozambican LNG to Japan by the year 2018. Chevron will find a huge market to export its Angolan LNG if it hurries the project this year. The very fact that there has been a flurry of shipping activity is reason enough for future optimism.

Competitors Anadarko and BP have invested in LNG and succeeded

Anadarko, which has been one of the most prolific LNG exporters in the world, literally put East Africa's Mozambique on the world’s oil map. The company has steadfastly worked toward developing Mozambique’s natural-gas reserves and has worked with Enersis to explore, drill and process natural gas.

Recently, Anadarko entered into talks with Japanese buyers so that LNG can be shipped by 2018, which is when it expects its Mozambican LNG to be ready for shipment. Anadarko has also continued to explore and drill in Kenya, Tanzania and other East Africa nations.

BP, Chevron's competitor and partner in the Angola LNG project, has a global natural gas business. It has been investing in LNG projects for the last 30 years. The company has also invested a lot in order to bring cleaner burning fuels to consumers.

However, BP's journey toward clean fuel has been marred by accidents in the Gulf of Mexico and elsewhere. It has been forced to pay huge fines and has borne the brunt of legal fees, as well. However, BP has continued to make significant strides in the development of clean LNG and delivering the resource to key markets, including the US and the UK.

The bottom line

Certainly, Chevron is going in the right direction, if we were to talk about LNG shipments. If Chevron begins to ship its Angolan LNG and export it to key international markets, its profits and income will drastically increase in the coming quarters.

Considering the ship has sailed to Angola, I believe LNG shipments will take place sometime later this year. With profits exceeding expectations and great LNG projects lined up for future, Chevron is a great stock that continues to attract investor attention.


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Comments

LLMC
LLMC - 2 months ago

Dear Sirs,

Having read your write up, you may wish to consider reviewing the posting for its accuracy and technical content. Regards.

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