Although the news was pretty much expected, Beach Energy Ltd (ASX: BPT) fell about 4% in morning trade after investors heard Chevron Corporation was pulling out of an exploration project. The US-based energy giant had a deal to help Beach Energy determine and potentially commercialise gas reserves in the Cooper Basin.
On 27 March, Beach Energy announced Chevron had finally made the decision to pull out of the agreement. The move is part of Chevron's initiative to cut costs and scale back international projects while Brent crude oil prices languish near multi-year lows.
The unconventional gas resource could one day supply gas to the LNG export market, but now it will be up to Beach Energy to find a new development partner or go it alone.
Oil juniors struggle
This is another sign for other junior oil and gas producers like Senex Energy Ltd (ASX: SXY) and Drillsearch Energy Limited (ASX: DLS) that financial support from overseas energy companies could fade away and they will need to shoulder the bill for exploration and development. These two Cooper Basin energy companies were also down on Monday.
Over the past year, all three stocks have fallen more than 30%. Gas produced for LNG exports has taken a hit since LNG prices are based on oil prices.
Beach Energy, Drillsearch Energy and Senex Energy stock chart
Source: Google Finance
Stick with the leader
Some companies like Woodside Petroleum Limited (ASX: WPL) are able to take advantage of the oil market collapse. Woodside can acquire assets and interests in development projects with its multi-billion dollar war chest while prices are depressed.
For example, it will buy Apache Corporation's stake in the Wheatstone LNG project as the US energy producer rolls back its overseas operations in a similar way to Chevron. Wheatstone will be starting production in 2016, so that will be a new income stream for Woodside.
For investors, it is riskier to buy the oil juniors over the market leader Woodside. As a low-cost producer, Woodside operates with larger margins and is cashed up to maintain exploration and development. It can survive longer than the juniors should oil prices stay depressed for an extended period. What's more, with a more stable dividend payment history, I would prefer Woodside and its 6.5% fully franked yield over the others.
