Zacks_Analysts' Blog : Chevron Hits Australian Gas Again - Analyst Blog

The Australian subsidiary of global integrated energy company Chevron Corp. (CVX) announced the discovery of natural gas in the Satyr-3 well, offshore Western Australia.

This discovery, 113 miles north of Exmouth Plateau area, marks Chevron’s thirteenth in the country since mid-2009. Located in the WA-374-P permit block in the Carnarvon Basin, the well was drilled to a water depth of 3,688 feet and encountered approximately 243 feet of net gas pay.

Chevron acts as the operator of the block with a 50% interest, while the remaining stake is equally distributed between Royal Dutch Shell plc (RDS.A) and Exxon Mobil Corporation (XOM).

In late December last year, Chevron discovered about 453 feet of net gas pay in Vos-1 well in the same basin.

We believe that these exploration successes will boost Chevron’s prospects in Australia by adding to its already significant gas interests in the country. The company is heavily involved with two multi-billion dollar liquefied natural gas (LNG) projects – Wheatstone and Gorgon.

We believe that such successful drilling activities along with these prominent projects will establish Chevron as a leader among natural gas and LNG suppliers in the Asia-Pacific belt.

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.

Chevron is scheduled to release its fourth quarter and full year 2011 results on January 27. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at a profit of $2.91 per share on revenues of $74.4 billion. For the full year, our earnings per share projection is $13.49 on revenues of $250.9 billion.

With the economic rebound strengthening and oil prices rallying, we expect Chevron to continue to accelerate revenue and earnings growth in the coming quarters. Additionally, the company’s strategic initiatives – aggressive cost reduction initiatives, exiting unprofitable markets and streamlining the organization – are expected to have long-term positive effects.

However, Chevron remains susceptible to downside risks from any weakness in the global economy. We are also concerned about the company’s high level of capital spending, which may result in reduced returns going forward. Hence, we maintain our long-term Neutral recommendation on the stock.