Chevron to Offload its Stake in NWS JV; Market Sees Woodside a Potential Buyer

Summary

• The current supply glut in the global oil market is posing headwinds of companies across the globe, making it difficult for many to operate and a few to offload their stakes.
• The global shakeout on the oil and gas front has now reached the continent with Chevron planning to offload its stake in Australia’s largest and longest-running LNG venture.
• While the lower gas price is one of the reason, the equal decision-making capabilities of all six partners are now witnessing a divergence in interest.
• While some players like WPL are focused more on consistent investment return and seeing the transition of the gas selling project into a tolling facility, the pure-play petroleum player Chevron is considering an exit.

The oil market across the globe has witnessed some tough time due to COVID-19 outbreak’s impact on the global demand, and despite a lot of production cut in place, the Organization of Petroleum Exporting countries (or OPEC) anticipates the global oil demand to observe a decline of 6.4 million barrels per day during the second half of the year 2020.

To Know More, Do Read: Oil Market Not Out of The Woods Yet- Says OPEC Secretary General HE Mohammad

The current supply glut in the global oil market is posing headwinds of companies across the globe. The decline in the oil market has reduced the price of relative products such as gas, gasoline, LNG, which sets the oil price as a benchmark.

Gas prices, especially wholesale gas prices across the continent remained under pressure for quite some time with an average fall of 42 per cent against previous corresponding period (or pcp) during March 2020 quarter, which also marked the lowest level since the first quarter of the year 2016.

To Know More, Do Read: Wholesale Gas Prices Under Storm- Lens over Demand and Supply

This global shakeout on the oil and gas front has now reached the continent that previously performed relatively better as compared to its global counterparts against the backdrop of falling energy and oil & gas prices.

Also Read: Is LNG Sector Primed Against Oil Bloodbath? Santos LNG Sales Surges By 15.62 Per cent in 1QFY20

The spreading roots of headwinds faced by global players in the oil & gas sector is now making its presence felt across the continent with Chevron Corp planning to sell a 16.7 per cent in the original and biggest LNG project of the country.

Chevron, founding partner in the North West Shelf JV, holds a stake in other prominent Australian LNG development including Gorgon development and the Wheatstone project, in which the Company holds a 47.3 per cent and 64.1 per cent, respectively, has now decided to offload its stake in the NW Shelf.

Chevron has decided to commence a sales process in the NW Shelf, after receiving a number of approaches from potential buyers, which as per the industry estimates, could be worth around USD 3 to USD 4 billion- considering the recent plunge in the LNG market, which was valued around USD 6 billion, prior to the COVID-19 outbreak.

Why is Chevron Considering the Exit?

While low price of LNG is one of the reasons, one of the prominent reason might be the cumbersome JV with eight different partners having an equal say in investment decisions, which leads to a problem in aligning the interest of all partners, including some major giants such as Royal Dutch Shell, BP, BHP Group Limited (ASX:BHP), Woodside Petroleum Limited (ASX:WPL), and Japan Australia LNG.

In the recent past, the plan concerning gas delivery from remote Browse gasfields through a 500- mile submarine pipeline to the NWS has been dropped in the wake of high development cost and low prevailing gas prices across the global front.

Furthermore, Chevron mentioned that now the NWS project is transitioning towards becoming a globally competitive third-party tolling facility, i.e., the project is now opening its services to new suppliers from being a gas seller owned by partners.

The project has witnessed similar problems related to the Scarborough project with the major holder- WPL planning to turn the ageing project into a toll treating business to process the third party gas.

Market Speculating WPL as A Potential Buyer

The decision of Chevron to exit the JV could now removes a considerable obstacle in the way of WPL, which currently manages the project and holds gas growth ambitions. Peter Coleman- Chief Executive, WPL previously signalled a likely overhaul in the ownership of the venture as it moved towards a business model with sustainable returns rather than pure-play petroleum players.

In a nutshell, the impact of a decline in the oil & gas market has now reached the continent with Chevron planning an exit from the oldest and most prominent gas venture.

Furthermore, while the decline in the LNG price is one reason, another reason for Chevron offloading its stake in the JV is diverging interest of partners. While WPL and many other partners are focusing on consistent investment return while supporting the transitioning of the project into a tolling facility, pure-play petroleum players such as Chevron are considering an exit.