Chevron Bets on Growth from Deepwater and LNG Projects

CVX: Chevron logo

Oil major Chevron (NYSE:CVX) revealed its plans to increase its output over the next 5 years on the back of deepwater, unconventionals and LNG projects. [1] The company’s expansion plans are contrary to the near term output falls expected by competitors like Exxon Mobil (NYSE:XOM) and ConocoPhillips (NYSE:COP). Chevron plans to expand net production by an annual 1% between 2012 and 2014, and raise the growth rate to 4-5% between 2015 to 2017.

The company is confident that its strong global pipeline of projects will help it achieve the projected growth in the upstream segment. It also announced that its portfolio rationalization program to improve downstream performance was nearing completion.

We are revising our $109 price estimate for Chevron, which is almost in line with its current stock price.

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New projects

Chevron has been very successful in the past few years in its explorations business. The company quoted Wood Mackenzie estimates that place it ahead of almost all its major competitors in terms of resource replacement over 2002-2010 and the underlying cost of finding resources in the same period.

Chevron reported a reserve replacement ratio of 171% in 2011, auguring for a strong growth in output levels in the long term. [1] Much of the growth in production is expected to come from deepwater and LNG projects. The company plans to spend 37% of its project spend over the next 5 years on LNG projects. Another 28% of the projected spending will be on deepwater resources. The company has deepwater projects located in the U.S. Gulf of Mexico, Western coast of Africa, Brazil, the Caspian region and East Asia.

The company will also continue its push into heavy oil projects and unconventionals. The company also estimates that while overall production will rise to 3.300 Million Barrels of Oil Equivalent per day (MBOED) by 2017, the share of crude in the overall output is declining. [1] However the share of LNG output with prices linked to oil will also increse, helping the company limit exposure to the low gas price environment in North America.

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  1. Chevron Security Analyst Meeting, Chevron [] [] []