Chevron Calls Off Great Australian Bight Drilling Program

Energy behemoth Chevron Corporation (NYSE:CVX) recently announced plans to discontinue the exploration drilling program in the Great Australian Bight (GAB). The company purchased two deepwater exploration permits in 2013 with the acreage spanning more than 32,000 square kilometers. The company intended to drill four wells but has decided not to proceed with the plans owing to weak oil price environment.

Chevron’s decision to exit the region is not based on waning prospects or regulatory and environmental concerns but has been guided by commercial factors. Deepwater/ultra deepwater drilling — with its associated risks and steep costs — requires much higher oil prices than the current rates. Thus with oil rates unable to stay above the psychologically-critical $50 threshold for a sustained period, the project did not seem to be a viable one.

Notably, BP plc (NYSE:BP) was rewarded exploration licenses for four blocks in the Ceduna area of the GAB in Jan 2011. However, the company also announced plans to discontinue exploration activities in the region last year. BP was of the opinion that the GAB project will not be economically viable. It was likely to generate lesser revenues in comparison to other upstream opportunities in BP’s global portfolio. Notably, Norwegian oil giant Statoil (OL:STL) ASA (NYSE:STO) — which acquired BP's stakes in the region in June — is still the chief operator of the area and remains committed to drill one exploration well by October 2019.

Chevron’s decision to call off the $500-million exploration project comes as a huge blow for South Australia.The director of Australian Petroleum Production and Exploration Association believes that substantial exploration activities in the region are imperative to address the country’s current energy crisis. It will lower Australia's reliance on imported oil and create job and investment opportunities in South Australia.

The move underscores Chevron’s strategy of balancing its global portfolio with its long-term business priorities. It will help the company to slash costs and streamline business models. The company wants to focus on the development of offshore natural gas resources in Western Australia. It recently increased its North West gas acreage by acquiring three exploration blocks spanning 23,170sqkm in the Northern Carnarvon Basin off Dampier. Chevron invested billions of dollars in Western Australia to commercialize its large gas resource base through its two mega projects — Gorgon and Wheatstone LNG project — in the region.

Zacks Rank and Key Pick

Chevron is one of the largest publicly traded oil and gas companies in the world, based on proved reserves. It is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses. The company’s oil and gas development project pipeline is among the best in the industry. Chevron currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked player in the energy space is Viper Energy Partners LP (NASDAQ:VNOM) . This Zacks Rank #1 partnership delivered positive earnings surprises in the trailing four quarters, the average being 18.36%.

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