Chevron Pushing Further into Natural Gas – Is There Much Stock Upside?

+6.18%
Upside
158
Market
167
Trefis
CVX: Chevron logo
CVX
Chevron

Chevron (NYSE:CVX) is one of the largest energy companies in the world and engages in several businesses like exploration & production of oil and natural gas as well as refining, transportation and trading. The company competes with other established oil producers like Exxon (NYSE:XOM), ConocoPhillips (NYSE:COP), BP (NYSE:BP) and Anadarko (NYSE:APC). Our price estimate for Chevron stands at $104, roughly 10% above market price.

We estimate that crude oil production is the largest single value driver for Chevron, contributing about 42% to the company’s stock value by our estimates. This is almost 5 times the value contributed by natural gas production, as we’ve previously discussed (see article Liquids Production is 5x as Valuable as Natural Gas Production for Chevron).

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Chevron Expanding Natural Gas Operations

Recent developments for Chevron include new gas finds offshore Australia, 10 in the past 18 months as part of its Gorgon gas project. [1] The A$43 billion Gorgon project is a joint venture in Western Australia, of which Chevron owns a majority stake.

This is just one example of Chevron venturing more aggressively into natural gas exploration. Chevron’s competitors like Exxon Mobil and Shell have also made moves to expand their natural gas production and Chevron is pushing further with such initiatives as its acquisition of Atlas Energy. The acquisition will allow Chevron to gain a foothold in the Marcellus shale, a giant rock formation underlying Pennsylvania, New York and other states that has become one of the most prolific sources of natural gas in the U.S. But how much equity value does this really add to the company?

See our full analysis and $104 price estimate for Chevron

Although the expansion is a positive for Chevron, natural gas production constitutes only 9% of the company’s stock value by our estimates, so upside from this segment is limited. The chart above illustrates this sensitivity. You can drag the trend line in the modifiable chart above to see how various scenarios for natural gas production volume affect Chevron’s stock value.

Notes:
  1. Chevron Gas Find Boosts Potential To Expand A$43 Bln Gorgon Project, The Wall Street journal, Feb 9 2011 []