Chevron Corp. (CVX) – the second-biggest U.S. energy company – started work on its massive A$43 billion ($37 billion) Gorgon liquefied natural gas (LNG) venture in Australia. Chevron Australia has a 47.75% operated interest in the prospect, with the other partners being ExxonMobil Corp. (XOM) and Royal Dutch Shell PLC (RDS.A). Executives from all three companies shared the honors of officially starting the operation with federal Resources and Energy Minister Martin Ferguson and Western Australia Premier Colin Barnett. However, major construction work on the project will not commence before the second half of 2010.

The Gorgon gas fields, off the coast of Western Australia, are estimated to contain 40 trillion cubic feet of gas deposits and have an expected economic life of at least 40 years from the time of start-up. Chevron said that the venture will have an annual capacity to produce 15 million tons of LNG, with the first shipment expected in 2014. In September, the project was given the final go-ahead by the joint venture partners following the receipt of the necessary government approvals.

The Gorgon joint venture partners (Chevron, ExxonMobil, and Royal Dutch Shell) have already entered into multiple deals to sell much of their share of production to Asian importers Incorporatedluding PetroChina Co. Ltd. (PTR).

We believe that the project start-up is a major milestone for Chevron. The Gorgon development has the potential to significantly boost the company’s long-term growth prospects in the fast-growing LNG market. Also, the business environment for LNG continues to remain robust, with demand likely to grow at around 8-10% annually over the next few years in all major markets. The Gorgon project provides Chevron and its partners an attractive strategic position for serving the fast-growing economies of China and India, plus other Asian countries.

San Ramon, California-based Chevron is one of the largest publicly traded oil and gas firm 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.

We currently rate Chevron shares as Neutral.

Zacks Investment Research

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