Chevron's (CVX) Gorgon LNG Train 3 Hit by Mechanical Snag

Chevron Corporation CVX has decided to temporarily suspend production at the Gorgon LNG project’s Train 3 in order to address a mechanical issue. With Australia sweltering under an extreme heatwave, the LNG plant's cooling processes have likely been affected by mechanical issue due to record-breaking temperatures.

Gorgon LNG is not only the most expensive project of Chevron but also the largest single resource project in Australia, dealing with the delivery of natural gas to international and domestic customers. Many industry watchers believe that the temporary suspension of the Gorgon Train 3 is likely to give a boost to the Asian LNG prices, which hit its lowest in eight months during the last week. Markedly, the winter prices are at two-year lows amid weaker demand owing to warmer weather in Japan and China.

Notably, the $69-billion project has been facing several hindrances in production since it dispatched its first cargo in March 2016. Since then, more than 250 cargoes have been dispatched to Asia. The Gorgon LNG project has a shipment capacity of 15.6 million metric tons per year.

While Chevron, holding 47.3% stake, is the chief operator of the Gorgon LNG project, Exxon Mobil Corporation XOM and Royal Dutch Shell PLC RDS.A own 25% interest each. The remaining stakes are held by Osaka Gas, Tokyo Gas and Chubu Electric Power.

Importantly, in April 2018, Chevron announced its intention to proceed with the second stage of the Gorgon LNG project in Western Australia's north-west coast. Chevron and its partners in the project plan to sink 11 new wells in Gorgon and Jansz-Io fields. They also intend to build offshore pipelines and subsea structures to pipe the gas to the LNG plant on Barrow Island.

The second stage of the project involves a capital investment of around $5.1 billion. The investment in the second stage of the project would fit within Chevron’s planned annual investment of $18-$20 billion through 2020. Apart from resulting in the creation of jobs and boosting the local economy, the expansion of the project is likely to boost the domestic supply of gas from 200 terajoules to about 300 TJ a day.

Zacks Rank and A Key Pick

Chevron currently carries a Zacks Rank #5 (Strong Sell).

Chevron Corporation Price

 

Chevron Corporation Price | Chevron Corporation Quote

Meanwhile, investors can opt for a better-ranked Canadian energy player, namely TransCanada Corporation TRP, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Being a quality stock with industry-leading wide moat assets, TransCanada has a secured portfolio of C$36 billion in growth projects. This should support the company’s stated annual dividend growth commitment of 8-10% till 2021. Underpinned by long-term contracts, TransCanada’s low-risk and recession-proof business model offers rock-solid revenues and cash flow stability to investors.

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