TEPCO Deal Keeps Chevron One Step Ahead
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Investors should be pleased with Chevron's (NYSE: CVX) recent actions. It will sell a stake in its Wheatstone project to Tokyo Electric Power (TEPCO) as part of a deal with the company. I think this will be good for Chevron and should lead to improvements in the stock.
According to this deal, TEPCO will purchase additional liquid natural gas from Chevron. It will also receive 10% of the interest in Chevron's Wheatstone liquefied natural gas project and an 8% interest in the Wheatstone natural gas processing facilities. In total, TEPCO will now be receiving 4.2 million tons of liquid natural gas each year from the Wheatstone project for a period of up to 20 years. At this point in time, we are not aware of how much this will cost TEPCO, so this makes it difficult to assess the financial implications that this situation has for Chevron stock.
On the surface, however, I feel confident saying this is a good move for Chevron to make. Chevron has signed deals with several Japanese companies. Japan has become desperate for energy sources ever since the tsunami and the Fukushima disaster last year. Companies that provide gas are taking the opportunity to cash in on this demand. Chevron is probably making some of the most significant deals of its career right now. The Wheatstone project, as compared to other liquid natural gas projects around the world, is located in a geographically-suitable position to serve the Asian market and meet its growing demand easily. Chevron should benefit greatly from the market in Japan.
Shares of ATP Oil & Gas (NASDAQOTH: ATPAQ.PK) have experienced a spike of 30% after the company filed a lawsuit against the U.S. government for "illegally" suspending drilling activities in offshore drilling and denying permits for activities of this kind to once again continue. This suspension followed the Gulf of Mexico oil spill, and the company claims that the government owes it $68 million in damages. The surge in the price of ATP stock is an indication that investors feel ATP is not only justified in this regard, but that it will also successfully win the lawsuit without any trouble at all. The stock has already gone up so much, however, that I think we will have to wait for further developments before this begins to affect the stock again. Investors would be wise to watch this lawsuit closely though, as it clearly has major implications for the stock.
Competitor Exxon Mobil (NYSE: XOM) recently experienced a relatively significant blow to its company. It announced that it will no longer pursue exploratory actions for shale gas reserves in Poland. This is following some testing that the company did, which yielded poor results indicating that the amount of shale gas in the area is not enough for the company's commercial purposes. It had initially estimated a high yield for the area, and the results of the test are disappointing for the company and for its investors. I expect the stock price to drop as a result.
Chesapeake Energy (NYSE: CHK) has been having trouble. It is set to announce its new chairman this week, but I do not think it is likely that we will see a very strong candidate take on the position. Chesapeake is, after all, a tainted company that needs a lot of work to turn it around. The change in chairman is a first for Chesapeake, as it has been under the same management since it was founded in 1989 by Aubrey McClendon and Tom Ward. I definitely agree that new leadership is necessary, but I have doubts that this change will be enough. As a result, I do not expect much change in Chesapeake's stock price.
BP (NYSE: BP) is in a much worse position though, as it must face another litigation. One of its refineries was the location of a disastrous explosion. As a result of the explosion, emissions leaked out, and more than 50,000 people are claiming that this has caused them to grow ill. They are all suing BP for damages. Even if the claims are unfounded, which seems unlikely, this black mark against BP's name will be hard for the company to recover from, especially since it is not the only legal trouble that has surrounded the company in recent times. I think this stock will drop, and BP seems to have a lot of work to do in order to recover from all its legal trouble.
As far as oil and gas stocks go, it appears that Chevron is ahead of the game at the moment. Liquid natural gas is the future for companies like these. A significant project like the one Chevron is working on in Australia could redefine the oil and gas industry in the very near future, leaving companies like Chevron in the lead. In addition, it is a good move to enter the Japanese market at this point in time. Chevron is a good option to keep an eye on, and I expect the stock to do well in the near future.
jewishitalian31 has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2013 $25.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, and long JAN 2014 $30.00 calls on Chesapeake Energy. Motley Fool newsletter services recommend ATP Oil & Gas and Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.