Chevron Arm Delays $12B Worth Makassar Strait Gas Project - Analyst Blog

U.S. energy giant Chevron Corporation's ( CVX ) affiliate PT Chevron Pacific Indonesia has decided to delay its $12 billion worth deepwater gas development project in Makassar Strait, as per media reports.

The delay can be traced back to Chevron's decision to revise its calculations for the deepwater gas development project as it has discovered new gas reserves at the site.

San Ramon, CA based 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 is planning to release its third-quarter 2014 earnings on Oct 31.

Chevron's current oil and gas development project pipeline is among the best in the industry - targeting volume growth of 20% by 2017 (from 2013 levels) - driven by the big Australian LNG projects (Gorgon and Wheatstone), as well as deepwater developments in the U.S. Gulf of Mexico.

However, we are concerned about the company's prospects as it has a high 2014 capital budget of $39.8 billion. This is expected to substantially increase the company's leverage and deteriorate its credit metrics. Additionally, the increasing capital intensity of its operations may result in reduced returns going forward.

Chevron currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next 1 to 3 months.

Meanwhile, one can look at better-ranked players in the energy sector like World Point Terminals LP ( WPT ), Helix Energy Solutions Group Inc. ( HLX ) and Newpark Resources Inc. ( NR ). All the stocks sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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