International
Chevron-Anadarko deal to stiffen LNG competition
Life for prospective LNG projects just got even tougher with Chevron’s $US50 billion ($69.7 billion) takeover of Anadarko Petroleum creating a hefty competitor that brings the US major’s two huge projects in Western Australia and Anadarko’s emerging position in Mozambique into a single portfolio, according to analysts.
While the rationale for the mega-deal is primarily linked to the two US players’ shale positions in the onshore United States, the LNG combination is also expected to be powerful, with Chevron highlighting to investors the low-cost, vast footprint of Anadarko and the attractive growth option in Mozambique.
Chevron entering Mozambique with its existing LNG footprint (largely out of Australia in Gorgon and Wheatstone) makes the project an even more formidable competitor for those seeking to sanction greenfield LNG developments over the coming few years,” RBC Capital Markets analyst Ben Wilson told clients.
Mr Wilson also said supply competition and the “crowding effect” of supermajors and national oil companies seeking to replace oil reserves with gas are likely to drive down returns from liquefied natural gas projects over time.
Australian-listed companies aiming to reach final investment decisions (FID) on LNG projects in the next two years include Woodside Petroleum, which is looking to sanction the Scarborough and Browse projects in WA, Santos with its Barossa gas project to supply the Darwin LNG plant, and Oil Search with its expansion in Papua New Guinea, in which Santos is also involved.
Chevron chief executive Mike Wirth described the Mozambique opportunity as “particularly exciting”, with one of the largest discovered gas resources in the world. With 9.5 million tonnes a year of contracted LNG sales, the project “is fast approaching FID, a timeline we fully support”, he said.
The stiffening in the competitive environment for LNG comes as spot prices for the fuel in Asia trade near a three-year low, posing challenges for new ventures looking to sign long-term sales deals at prices high enough to underpin multibillion-dollar investments.
Meanwhile, the takeover means Chevron will look to “high-grade” the combined portfolio, with Mr Wirth signalling $US15 billion-$US20 billion of asset sales over the next three years.
However, the Australian portfolio, which includes a stake in the Woodside-run North West Shelf venture as well as about 47 per cent of Gorgon and 64.14 per cent of Wheatstone, was not likely to be affected, said Wood Mackenzie analyst David Low. This was because it was growing in importance within the Asia-Pacific portfolio, with the unwinding of Chevron’s positions in Thailand and Indonesia.
Chevron has ramped up capacity at its Wheatstone LNG plant at Ashburton North on the WA coast. supplied
“The Chevron-Anadarko transaction will spark increased urgency from Chevron to divest non-core assets,” Mr Low said.
“It is likely that a number of upstream assets across Asia will be sold, but unlikely that Australia will figure as part of that due to the importance of those assets in the portfolio. Rather, we believe Australia will become a greater focal point for Chevron in the years to come.”
Mr Low said Wheatstone and Gorgon, two “prolific cash-generating assets”, would be important to service Chevron’s promised increased dividend, while the North West Shelf presents an opportunity for Chevron to ac
RBC’s Mr Wilson said the takeover also cements the trend of consolidation within the LNG sector, which has also seen a joint agreement between Tokyo Gas and Centrica to work together in LNG supply in Asia-Pacific and has a deal to buy LNG from Mozambique LNG.
He added that such big-ticket mergers and acquisition activity also inevitably sparks consideration of any potential target companies in the local area, where Santos last year came within the sights of US private equity firm Harbour Energy, and Oil Search earlier attracted attention from Woodside.
He said although he saw no immediate read-through from the deal in Australia, such consolidation had a trickle-down effect and in any case underscored “a reinvigorated interest in energy companies backed by a firming oil market”.