As an investor, if you were interested in adding an oil and gas production company to your portfolio, which would you consider? To cut down on your research time I would suggest looking at Chevron (CVX) as one of your top candidates. It appears it has some solid plans for aggressive growth over the next five years and would make a good candidate for a value/growth investment. Let's take a look at some of its plans and see what it is presently doing around the globe.
Chevron's Growth Forecast
It appears that analysts have recently preferred Chevron to Exxon Mobil Corp. (XOM) as their preferred stock. Over the next five years the preferred company, Chevron, is expected to outperform XOM by 55% (that adds up to about $125 billion in market). Morgan Stanley (MS) is the lead analyst behind this thinking and their reasoning is a combination of Chevron's production growth which is supposed to be higher and also its continuing improvement upon returns.
Chevron expects to squeak out a small gain this year and could see much greater growth in the next five years. In fact, the company has projected 3.3 million barrels of oil (or equivalent) production per day by 2017 which would mean a production increase of 25%! Much of the production growth which will kick off this year will be in its Permian Basin assets that it recently purchased from Chesapeake Energy Corp. (CHK). In the Midland Basin it drilled 300 wells in 2012 and expects to drill 340 in 2013. In the Delaware Basin it drilled 40 Wells last year and this year has projected up to 100 wells.
I guess if I would describe Exxon Mobil Corp.'s position, I would have to use the phrase: "no pain no gain." The company has stated that it is expecting to decrease production by 1% this year and increase it by 2% 3% through 2017. The decrease in production will be in natural gas. XOM is the largest natural gas producer of all the oil and gas companies and took this title when it bought XTO Energy. Many companies have taken the road of the "natural gas strategy" but it hasn't worked out well because of oversupply and a drop in prices over the last four years. For this reason XOM is moving its focus to increasing its oil and oil liquid strategy output.
If investors are exploring the possibility of putting their money in one of the larger oil companies, Chevron might be a good candidate for that right now. Presently Chevron's shares trade at 8.9 times earnings while Exxon Mobil Corp. trades at 9.1 times earnings but by 2016 analysts expect that value edge that Chevron has will close.
Brazil Deepwater Opens Again
Production in the first two months of this year did not keep up with the previous year due to increased maintenance activity in the Gulf of Mexico. We may see production grow as Brazilian oil regulators will allow Chevron to resume production in its offshore wells. If you have kept up on the company, in 2011 it spilled more than 100,000 gallons of oil into the ocean that led to the closing of its wells. Resuming production in the off shore region of Brazil is good for Chevron since it derives most of its exploratory and production profits outside the United States. The company is allowed to resume drilling for one year on six of it's off shore platforms off the coast of Rio de Janeiro. CVX is working in conjunction with Brazil's national oil company, Petrobras (PBR), tapping into an off shore field estimated to contain about 8 billion recoverable barrels of oil.
Brazil is very interested in aggressive oil expansion as a nation. Not only did Chevron receive permission to drill for another year, but production was approved at two other unrelated wells. Chevron is not the only company vying for possibly lucrative oilfields in the country, there are nearly 70 oil and gas companies that will bid on oil block auctions in the month of May in Brazil. The nation holds the largest oil reserves discovered in the 21st century located in the pre-salt reserves underneath the Atlantic offshore. Even though the auction in May will not cover those reserves, Brazil is aggressively raising its production levels and Chevron expects to have voice in the pre-salt reserves in the coming years.
As I observe Chevron's chart, one thing I have noticed is that while the S&P 500 has reached another high, CVX has not done the same. The Bollinger bands reveal three legs of a bullish trend and it is on the third level that we usually see the stock weakening. Both the RSI indicator and the MACD indicator reveal a negative divergence and this would support the weakness in the stock. With the recent news of an over abundance of oil in the United States, I would expect to see Chevron and other oil and gas companies pullback for a period of time.
I believe Chevron will be a good long term growth prospect in the years to come because of the observations I have made of their future plans and projections. Ramping up production in Brazil again will help the company get to where it wants to go considering it does derive much of its production overseas. Even with oil and gas prices fluctuating I believe the company will continue to grow and prosper because of the visible projects it is working on for its forecasted production levels through 2017. If you are interested in adding an oil and gas company to your long-term value/growth portfolio Chevron is one to consider.