U.S. based oil super-major Chevron (NYSE:CVX) has been ramping up its shale gas exploration and property purchases for over two years now, with a target of replicating the North American shale gas revolution in other parts of the world. The company currently executes shale gas exploration and drilling activities in several regions including North America, Argentina, China and Eastern Europe. 
Chevron is attempting to identify regions with abundant shale gas reserves as well as lucrative markets for the commodity. From this perspective, the company is especially optimistic about its prospects in Eastern Europe, where it has acquired more than 4 million acres of leased properties in Bulgaria, Poland and Romania, all of which lie around the shale-rich Trans-European Suture Zone. It is also negotiating with the governments in the region for the rights to use the controversial “fracking” method of shale extraction.
Chevron Betting on Abundant Reserves and Rising Natural Gas Prices
The region seems a good bet, considering that recent estimates by the US Energy Industry Administration (EIA) indicate that the continent has 639 trillion cubic feet of potentially recoverable shale gas resources, which is not far behind America’s reserves of 862 trillion feet. The company currently produces around 4.65 billion cubic feet of natural gas per day on average. A successful project in Eastern Europe could substantially increase production rates.
Chevron’s vice chairman stated in June, in reference to international natural gas prices, that “the speed at what people speculate shale gas will be coming to market is faster than what reality will actually show”.  We interpret this to mean that the company is bullish on natural gas prices going forward, which would justify its large investment in gas exploration and drilling.
Why Eastern Europe May Not be The Next Shale Gas Hub
On the downside, there are several reasons as to why the US shale gas boom may not be replicated in Europe. First, data availability regarding shale reserves in the region is limited, unlike in the US, where prior drilling and well established networks of oil companies provide abundant information.
In Poland, for example, estimates by the EIA last year indicated vast reserves of shale gas (187 trillion cubic feet) in the region, and a number of oil companies, including Exxon Mobil and Chevron, started exploring and purchasing properties in the region. However, Exxon Mobil, which has six concessions in central Poland, exited the region after test results indicated commercial inviability. Further, recent tests by the Polish Geological Institute indicated reserves of 12-27 trillion cubic feet, just 10% of the earlier estimate. 
Second, the hydraulic fracturing (fracking) method of shale extraction is highly controversial due to its potential effects on the environment. While this did not prove to be much of a barrier in the US, several countries in Europe, including France and Bulgaria, have strongly opposed its use.
Several other issues exist, including higher population density in drilling areas and unfavorable laws governing taxes and property rights. In fact, Argentina may be a far brighter prospect going forward. In summary, while Eastern Europe might well be the next major breakthrough for Chevron, the company will have to overcome several obstacles, some possibly insurmountable, before finding any success in the region.
We currently have a Trefis price estimate of $115 for Chevron, which is in-line with the market price.Notes: