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James Burgess

James Burgess

James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…

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Geothermal Assets Next To Go In Chevron Crunch

Struggling with a fourth-quarter loss of US$588 million, Chevron Corporation (NYSE:CVX), the second largest U.S. oil producer, is now believed to be working towards a $3-billion divestiture of its Asian geothermal assets.

According to anonymous sources cited by Bloomberg, Chevron is already talking to financial advisors, but no formal process for such a divestiture has been launched and a final decision is still pending.

At stake are primarily geothermal assets—which provide electricity generated by the geothermal energy of the Earth—in the Philippines and Indonesia.

Chevron’s geothermal projects in Indonesia in the Darajat and Salak fields have a combined generation capacity of 647 megawatts, while its two facilities in the Philippines—Tiwi and Mak-Ban—have a combined generation capacity of 692 megawatts. Related: Big Oil Eyes Upcoming Auction In Iran

If it happens, it will be big for Chevron because these are significant assets—even for those who think that it’s all about oil and gas. What’s more, especially in Indonesia, Chevron has been a leader in the geothermal field for decades, so it would not be a decision taken lightly. We’re talking about some of the largest geothermal operations in the world.

But it’s been a tough year for Chevron, which reported $588 million in fourth-quarter losses, which represents a loss of $0.31 per share and compares to positive earnings in the same quarter for 2014 of $3.5 billion. For last year, Chevron earned $4.6 billion in total. But it earned $19.2 billion the year before. Related: What A Falling Rig Count Can Do For Oil Prices

Chevron has already had to make some painful divestiture decisions, including its shallow water Gulf of Mexico assets, which are up for sale now, and its Moroccan deepwater blocks. And it’s targeting a total of $10 billion in asset sales for this year, while the giant Gorgon LNG project in Australia is a long-term game that is absorbing a lot of capital.

According to Marketbeat, 29 analysts covering the stock have assigned Chevron shares an average recommendation of “Hold”, while two equities research analysts have recommended a “Sell” and 15 have recommended a “Buy”. Zack’s has issued a “Strong Sell” rating.

Ultimately, though, market research shows that the geothermal market continues to grow, driven by favorable government support and increased strategic investment in research and development, as well as growing demand for electricity. Related: Oil Continues To Rally As Short-Covering Continues

Visiongain forecasts that “capital expenditure (capex) and operational expenditure (opex) on geothermal power developments will total $7.99 billion in 2016,” noting that last year, 25 countries were using geothermal sources to generate electricity and today there are 75 countries planning to carry out geothermal developments soon.

According to the Geothermal Energy Association (GEA), by the end of 2013 we could generate some 3,442 megawatts of electricity through geothermal power, with another 4,100 megawatts under development globally.

By James Burgess of Oilprice.com

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