Why Chevron Is A Strong Buy

May.24.12 | About: Chevron Corporation (CVX)

Things are looking good for Chevron (NYSE:CVX) in several ways at the moment, and I think the stock is a "screaming buy." For one, there are talks that Japan's Tokyo Electric Power wants to invest in Chevron's Wheatstone natural gas project in Australia. Tokyo Electric Power Co., or Tepco as it is more often called, is in discussions with several Japanese companies to purchase a $4.35 billion stake in the Wheatstone project -- namely Mitsubishi, Nippon Yusen K.K., and state-owned Japan Oil, Gas and Metals National Corporation. At this point, the talks are still "private," so final news cannot be reported as yet. Spokespersons have declined to comment on the details of this possible investment. Sources do, however, expect the companies to purchase a 10% stake in the gas fields, as well as 8% interest in the natural gas facilities.

The Wheatstone project is one of several that have been put in place in order to attempt to meet the rising demand for energy since the Fukushima disaster last year. Japan is desperately trying to up its thermal-energy generation in order to avoid the whole issue of nuclear power. The disaster hit Tepco hard, as it is the owner of Fukushima, the crippled plant that was most severely damaged by the tsunami and earthquake. Hence the need to join hands with Chevron. This could mean good things for Chevron going forward. At this point, negotiations are still ongoing and Chevron itself has not commented on the deal.

Chevron's partner in Brazil, Petrobras, announced that it is unlikely to shut down its offshore Frade field in Brazil, the subject of an oil spill that took place last year in November. In fact, the company feels that the plant will be reopened following a close examination of the causes of the spill. As Chevron owns 52% of the Frade field, shareholders can only hope that any investigations that are performed will clear the energy company of wrongdoing. Despite the company's positive outlook on the situation, it seems that it may yet face more problems in the coming months.

Chevron has also decided to shut down the production of its wells in Marshall County for safety reasons. Basically the company says that it needs to improve the safety of its operations in the area before operations can resume. A spokesman for the company, Trip Oliver, said, "Chevron took this action to perform maintenance, improve the safety and reliability of operating systems and enhance the pad stability at some of the sites."

So it's nothing too serious, or so we hope. In these cases, there is always a chance that some sort of harm has already been caused by the station prompting the shutdown. The spokesman did not go into details about the scope of the shutdown or when operations will resume. He also claimed that it is in no way related to the decline in the price of natural gas that has affected the gas and oil industry recently. Some of the wells have already started producing again, and the remaining wells will be back in action once it can be conclusively found that they can be operated safely. Hopefully there is nothing more sinister behind this seemingly sensible move that Chevron has made.

Competitor Valero Energy (NYSE:VLO) has been experiencing a run of bad luck recently, with four of its American refineries reporting problems. The actual practical effects that these problems may have on the company are almost immaterial in the light of the bad impression these events convey about the soundness of the company itself. To me it seems that all is not well with Valero, as the company looks to right itself and its production numbers.

Ex-BP (NYSE:BP) employee, Kurt Mix, recently made a claim in court that there is evidence that will exonerate him altogether of the accusations that are being made against him. He is accused of deleting text messages about the severity of the Gulf of Mexico oil spill two years ago and thereby hiding the full extent of the situation from the general public. The evidence that he speaks of is at present not publicly known, but hopefully for BPs sake it is not another mark against the big company's name. I think that it will be interesting to see where this information leads the case, as well as the struggling BP effort to recuperate from the spill.

Exxon Mobil (NYSE:XOM) is also battling the aftermath of an old oil spill. The oil spill in question occurred in Yellowstone River last year. Although at least one area is oil-free, there are still a large number of areas that are not. Exxon needs to do something soon to counteract the backlash of these findings. This comes as the company continues to put up sound numbers. The spill was not initially thought to be terrible, but lasting effects can certainly drive a company down a bit.

It seems to me that ConocoPhillips (NYSE:COP) is an energy company with the right idea. This company plans to expand its operations in Australia, which I feel is a good move because of the location. Japan has turned to energy operations in Australia in order to combat the enormous loss of power following the Fukushima disaster last year. Companies like ConocoPhillips can step in to fill that need. Conoco may well be a serious competitor for Chevron in terms of supplying the needed Japanese energy demand. Look for the two to make headway in this market, and see which one can come out with better deals and bigger finds.

Barring anything getting in the way, Chevron looks poised to make a solid run for this quarter. If it can right its production areas that are currently causing trouble, and lock in a deal in Japan, there should be smooth sailing ahead for the oil company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.