hess

Last paragraph would give Woodside a bit of hope

(Citi regards Hess’ Equus gas discoveries off Western Australia and the Scarborough gas field owned by ExxonMobil and BHP Billiton as unlikely resources to supply an expansion of Wheatstone. Rather, gas is more likely to come from the Gorgon venture, the analysts said.)





Citi upbeat on Chevron’s Gorgon, Wheatstone LNG
PUBLISHED: 3 HOURS 11 MINUTES AGO | UPDATE: 2 HOURS 22 MINUTES AGO
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ANGELA MACDONALD-SMITH
Citigroup has released an upbeat assessment of Chevron’s liquefied natural gas expansion plans in Western Australia, forecasting the US gas major could have seven or eight LNG trains running between its Gorgon and Wheatstone ventures by the early 2020s.

In a note to clients after last week’s investor tour hosted by Chevron, Citi analysts Faisel Khan and Mark Greenwood said the two plants would be “long-life earners” for Chevron, underpinning its growth pipeline under development that is one of the largest of all the major oil companies.

On the Gorgon plant, whose $US37 billion budget is under review, Citi said it expects a 30 per cent capex increase to about $US48 billion.

But that is still substantially less than some speculation in the market that the final cost for the first phase of Gorgon, involving three production trains each of 5.2 million tonnes per year of LNG, might blow out to about $US60 billion.

Citi said even assuming a $US48 billion budget and a six-month delay in the start of production to mid-2015, Gorgon still provides a “robust” rate of return of 13 per cent, using a long-term Brent crude price of $US85 per barrel. It said the first three trains will contribute more than $US4 billion in annual free cash flow and $US1.50 per share in earnings to Chevron.

Chevron told investors last week it expected to start engineering and design work on a fourth LNG train at the Barrow Island site for Gorgon by the end of the year, despite the cost issues. It is due to release a revised budget for Gorgon in late 2012.

Citi said in its report a final investment decision on train four is likely by the end of 2014, with production from that plant starting by the end of 2018. It calculates a likely rate of return of 15.7 per cent on train four, assuming a capital cost of $US12.5 billion and oil prices of $US85 per barrel.

At Wheatstone, the rate of return on the first two trains under construction at Ashburton North on the WA mainland is expected to be 13 per cent, Citi said, adding the project should generate annual free cash flow of $US3.3 billion and $US1.20 per share in earnings for Chevron.

The analysts noted Chevron plans to drill another eight exploration wells off north-west Australia by the end of 2013, and should its recent record of success continue, it could secure enough gas for a third train at Wheatstone. If not, Chevron could use third-party gas and take a final investment decision on an expansion by the end of 2015, it said.

Citi regards Hess’ Equus gas discoveries off Western Australia and the Scarborough gas field owned by ExxonMobil and BHP Billiton as unlikely resources to supply an expansion of Wheatstone. Rather, gas is more likely to come from the Gorgon venture, the analysts said.

The Australian Financial Review