Nomura Expects Some Profit-Taking on Chevron Stock

On Tuesday, Chevron Corp. (NYSE: CVX) said it was stopping production at its massive Gorgon liquefied natural gas (LNG) project off the northwest shore of Australia due to unspecified mechanical problems. The production halt could last for 30 to 60 days, and the news led to a bit of a sell-off.

Nomura analysts issued a quick note on Wednesday, reiterating their rating on Chevron stock as Neutral with a price target of $85. They expect some profit-taking due to the run-up in Chevron’s share price since mid-February. Here’s what they had to say regarding the Gorgon shutdown:

[O]ur Neutral rating and target price (USD 85) reflect a full valuation and concerns on execution centred on: a) timing with Gorgon as a multi-train project with [another Australian LNG project] Wheatstone only de-risked by mid-2017 at the earliest; b) commissioning of these waves of LNG projects typically now takes the industry longer, reflecting greater complexity; and c) translation of volumes into cash flow and financial performance may initially disappoint given project phasing and higher start-up/integrity costs.

Gorgon’s proved hydrocarbon reserves total 9.6 trillion cubic feet and groundbreaking for the project occurred in 2009. Chevron owns 47% of the project and is the operator. Other partners include Exxon Mobil and Royal Dutch Shell, each with 25%, and three Japanese companies with minor stakes.
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The first shipment of LNG from the project arrived in Japan last week. The two to three month shutdown is attributed to a system that is used to help cool the natural gas during the liquefaction process in the first production unit (called a train). Two additional trains have been planned for the project, which has already cost $54 billion.

Chevron said that the production line is still expected to meet its first-year target of 5.2 million metric tons (roughly 250 billion cubic feet). When all three planned trains are operational, Gorgon is expected to export 750 billion cubic feet of natural gas a year.

Wednesday’s report on U.S. oil inventories was propping up Chevron’s share price. The stock traded at $94.10, up about 1.5% on the day, in a 52-week range of $69.58 to $112.20.