Another Reason Chevron Might Be Selling Asian Assets

The Wall Street Journal reported Thursday that Chevron Corp. (NYSE: CVX) may be shopping Asian assets worth up to $5 billion as the company tries to raise cash in the current, seemingly endless period of low crude oil prices. As recently as 2013, Chevron was still acquiring rights in offshore blocks in Pearl River Mouth Basin near Hong Kong.

In 2010 Chevron acquired the rights to three offshore blocks in the South China Sea from Devon Energy. The terms of that and the later agreements give China National Offshore Oil (CNOOC) the right to take a majority (51%) interest in any commercial quantities that Chevron discovers. In 2012 Chevron had drilled three dry holes in the area. The dry holes are not the primary reason to try to sell the offshore blocks however.

The People’s Republic of China is essentially claiming the South China Sea as a Chinese lake. Disputes with Vietnam, Japan, the Philippines, Malaysia, Taiwan and Brunei have popped up over the years, and these disagreements are currently heating up again, especially with Japan and the Philippines.

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Chevron signed a deal with Malaysia’s state-controlled oil company Petronas in 2006 to explore for oil and gas offshore of Vietnam. China kicked up a fuss and Vietnam offered Chevron protection, but the company decided that discretion was the better part of valor and pulled out in 2007.

Indonesia’s state-controlled oil company Pertamina said earlier this year that it plans to explore areas near its territorial water borders on the South China Sea, mostly as an assertion of its rights to the area.

The South China Sea’s potential oil and gas deposits have been estimated at about 11 billion barrels of oil and 190 trillion cubic feet of gas (around 33 billion barrels of oil equivalent).

Chevron probably is hoping that CNOOC will acquire its exploration rights, and the Wall Street Journal figures the rights could sell for about $1 billion. All told, Chevron’s Asian assets may be worth up to $5 billion, according to the Wall Street Journal, half the total value Chevron’s divestment target of $10 billion.

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