Chevron Corporation (ticker: CVX), the world’s third largest E&P by market capitalization, is selling its 50% shareholding in Caltex Australia Limited. The deal is reportedly worth about US$3.6 billion, according to the Sydney Morning Times Herald, and is the biggest block trade in Australia’s history. The deal was solely underwritten by Goldman Sachs and is expected to “be sold to a broad range of Australian and global equity market institutional investors,” says the CVX release issued on March 27, 2015.
Caltex supplies 33% of all Australia transport fuels and is the only integrated oil refining and marketing company listed on the Australian Securities Exchange. The retail company addressed Chevron’s decision in its own press release, saying business is “unaffected” and Chevron will “remain an important supplier.”
Chevron’s View
Chevron said the Caltex sale does not alter plans to complete its liquefied natural gas projects in Gorgon and Wheatstone, with the former expected to be export-ready by year-end. Wheatstone is about 60% complete, management said in its recent analyst day, with the first train scheduled for completion near the end of 2016.
The company plans on divesting $15 billion in assets through the next four years, up from its original goal of $10 billion in three years. Sales in Chad and the Canadian Duvernay yielded about $6 billion in 2014 alone.
Its capital program, in turn, will trend downward as the investment in LNG programs winds down. Chevron management said its two Australian projects will only cost about $1 billion in 2017, down from current levels of $8 billion. Its 2017 budget of $30 billion is 14% below projected 2015 levels of $35 billion.
In the analyst day, company executives were adamant on selectively exiting ventures believed to be less profitable. “We typically divest assets that can’t compete for capital in our portfolio, which are often either early or late in life,” said Jay Johnson, Senior Vice President of Upstream. “Recent examples include Cambodia, Chad, and the Netherlands.”
The company also canceled a gas deal with Ukraine in December after the two sides failed to reach an agreement on taxation.
Chevron expects to fund its dividend entirely through cash flow by 2017, aided by higher oil prices, intended asset sales and lower projected capital expenses. Management said a $10 rise in oil prices adds anywhere from $3 to $4 billion to cash flow on existing production. Enticing investors has been a staple of the CVX business for several years, and the company has reiterated it has no intention of altering its dividend. CVX has also repurchased $45 billion in stock in the last decade and reduced its outstanding shares by a net of 14%.
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Analyst Commentary
Wells Fargo Securities (3.27.15)
The sale of a non-core fuel retail business in Australia is consistent with Chevron's stated goals in our view. This is a good asset sale as it is quickly and easily accomplished. There is no negative impact on its oil and gas production volumes or reserves. Retail assets have more than maintained their value even as oil and gas asset valuations have taken a few steps back. The only fly in the ointment is that the Australian dollar is at a six-year low relative to the $US.
