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NorthAmOil COMMENTARY NorthAmOil
One step forward, two steps back for Kitimat LNG
Chevron has said it could sell its entire stake in the Kitimat LNG project, within days of receiving an expanded export licence for the facility
BRITISH COLUMBIA
WHAT:
Chevron is considering putting its entire stake in Kitimat LNG up for sale.
WHY:
The company expects to take a $10-11bn write- down this quarter related in large part to its gas operations.
WHAT NEXT:
Partner Woodside Petroleum has reaffirmed its commitment to Kitimat LNG but will hope for a new partner.
DAYS after the proposed Kitimat LNG project received an expanded export licence from Cana- dian regulators, the plan has suffered a setback on news that operator Chevron is considering putting its entire 50% stake in the venture up for sale. NewsBase reported last week that the Canada Energy Regulator (CER) – formerly known as the National Energy Board (NEB) – had approved Chevron’s application to export LNG from Kitimat for a period of 40 years. The approval doubled the export period from the original licence for the project, as well as increas- ing the volume of LNG to be exported from 10mn tonnes per year to 18mn tpy. The move was hailed as a step forward for the project, but Chevron’s subsequent announcement about a potential sale throws the plan into doubt once again.
“Although Kitimat LNG is a globally com- petitive LNG project, the strength of Chevron Corporation’s global portfolio of investment opportunities is such that the Kitimat LNG pro- ject will not be funded by Chevron and may be of higher value to another company,” the company said in a statement last week.
The super-major has set no timeline for the process of finding buyers for its Kitimat LNG stake. Its other Canadian assets will not be part of the sale.
Taking a hit
Chevron’s plans for a potential sale were revealed when the company announced it expected to take a $10-11bn after-tax impairment charge in the fourth quarter of 2019. The write-down is in large part related to certain natural gas assets, with Chevron attributing more than half of it to its Appalachia shale gas operations. It comes as natural gas prices have remained consistently low recently, exacerbated by a glut of the fuel in the US.
Against this backdrop, the super-major lowered its long-term forecast for oil and gas prices, which negatively affected the value of its assets.
“We have to make the tough choices to high- grade our portfolio and invest in the highest-re- turn projects in the world we see ahead of us, and that’s a different world than the one that lies behind us,” Chevron’s CEO, Mike Wirth, told the Wall Street Journal last week.
While there have long been questions over the profitability of drilling in the Appalachia region, which contains the prolific Marcel- lus and Utica shale plays, new concerns are arising over the outlook for the global LNG industry.
Global LNG markets are increasingly fac- ing oversupply, and a number of new export
Chevron’s anticipated $10-11bn write-down is related in large part to its Appalachia shale gas operations, leading to questions over the profitability of other natural gas projects.
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Week 50 18•December•2019