(CVX) Chevron Contracts to AusGroup

The Australian unit of Chevron Corporation (CVX) awarded a major pipe stool manufacturing contract to AusGroup for the Gorgon liquefied natural gas (LNG) project. The value of the deal has been estimated at approximately A$50 million. The contract, covering a time frame of 18 months, will commence in the second half of 2011.

Singapore listed AusGroup will execute the deal through its subsidiary AGC Industries Pty Ltd. The scope of the work involves receiving material, fabrication, storage as well as coating and testing of 8200 pipe spools of various diameters, weighing approximately 7500 tons.

The $37 billion Gorgon project is a natural gas venture in Western Australia, covering the development of Greater Gorgon gas fields, subsea gas-gathering infrastructure and an LNG plant on Barrow Island. The facility is expected to produce approximately 15 million tons of LNG per year, with the first gas production expected in 2014.

Apart from Chevron, which holds a 47% interest and acts as the operator, the Australian subsidiaries of Royal Dutch Shell plc (RDSA) and Exxon Mobil Corp. (XOM) –– each having 25% stake –– also form a part of the project. The remaining 3% is controlled by Osaka Gas, Tokyo Gas and Chubu Electric Power.

With the industry outlook remaining attractive for LNG over the next few years, we believe that the Gorgon project will be successful in serving the Asia-Pacific region. The venture will also lend a strong strategic position to Chevron and its associated partners in the quickly developing economies of China and South East Asian countries.

San Ramon, California-based Chevron is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals and other energy-related businesses.

We are maintaining our long-term Neutral recommendation on the stock. Chevron shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.

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