Chevron (CVX), the second largest U.S.-based super major, actively seeks exploration and production of oil and gas plays globally, including in the Gulf of Mexico, Kazakhstan, Angola, Nigeria, Canada, Saudi Arabia, Australia and, of course, the U.S.
For a company with such a depth of services and products, it wisely measures the costs and risks involved of each decision. For example, while the other big boys were turning toward natural gas when it was hot and heavy, Chevron keenly decided to buy existing companies with already proven track records in the natural gas business, while not letting up on oil exploration and production.
This kept the company ahead of most of its competitors such as Valero Energy (VLO), Royal Dutch Shell (RDS.A), Anadarko Petroleum (APC), and BP (BP). It also helped the company to inch closer to leader Exxon Mobil (XOM). Chevron is a company that for the past 133 years has rewarded investors and I believe will continue to do so. This is one of those stable companies that every investor should own for the long haul because it continues to make smart strategic moves toward finding and bringing to market more energy resources.
Like Exxon, Chevron had high hopes of profiting big from natural gas exploration and production. In 2010, the company acquired Atlas Energy for $4.3 billion, including the assumption of debt. Chevron was attracted to Atlas because of its 486,000 net acres of the Marcellus Shale, which has been a big natural gas play in previous years.
As part of the deal, Chevron received a 49% interest in Laurel Mountain Midstream, a joint venture with Williams Partners LP (WPZ) that owns natural-gas gathering lines serving the Marcellus Shale. But unlike Exxon, Chevron did not double down on natural gas and continued to produce oil and liquids, though the company is seeing some success with natural gas plays. One of them is the Gorgon Project that the company invested $43 billion in.
The company recently signed another customer thanks to natural gas demand in Japan following last year's earthquake. Chevron, along with joint venture partners Apache (APA) and Kuwait's Kufpec, have signed a preliminary agreement to sell up to 1 million metric tons of liquefied natural gas (LNG) a year from the Wheatstone project in Western Australia state to Japan's Tohoku Electric Power.
The Gorgon Project remains on course and is close to 40% complete. It is due to ship its first LNG cargo in 2014. The Wheatstone Project is still targeting first LNG in 2016. The Tohoku agreement means that over 80% of Chevron's equity output from Wheatstone is now contracted to buyers under initial or binding long-term deals.
The company, like others in the business, has to make some creative moves in order to make up for mature wells that might not be producing much anymore. Chevron, along with Royal Dutch Shell, will begin developing two large gas fields in the Ukraine next year, with the first production scheduled for 2017.
According to the U.S. Energy Information Administration, the former Soviet republic has Europe's third-largest shale gas reserves at 1.2 trillion cubic meters, behind France and Norway. The two locations could yield at least 15 billion cubic meters of gas per year, with Yuzivska by itself, with likely 3,000 wells drilled, producing a total of one trillion cubic meters. Royal Dutch Shell will develop the Yuzivska area, in eastern Donetsk and Kharkiv regions, and Chevron will explore the Olesska area in the western region of Lviv.
The company is also playing a part in the Tengiz fields which is one of the 10 largest producing fields as well as the largest in Kazakhstan, producing about 565,000 barrels of crude oil a day (bbl/day) in 2011, which was slightly lower than its output the previous year.. The company is seeking to spend about $8 billion to continue output in the field. Chevron has a 50% stake in it, where other companies such as Exxon and ConocoPhillips (COP) also have operations. Chevron will spend the first $1 billion to to drill four wells there this year.
In Saudi Arabia, Chevron has a concession agreement (that expires in 2039) to operate the Kingdom's 50% interest in the hydrocarbon resources of the onshore area of the Partitioned Zone (PZ) between Saudi Arabia and Kuwait. With a foothold already in the space (the company drilled 76 wells in the PZ in 2011), numerous facility-enhancement programs, development drilling, and well maintenance scheduled for 2012 and 2013, this is expected to partially offset declines in overall field production.
Production is the focus for Chevron, though oil is lagging a little for the first quarter. According to the first quarter 2012 report, net oil-equivalent production of 1.98 million barrels per day was down 86,000 barrels per day from a year ago. Production increases from a project ramp-up in Thailand were more than offset by maintenance-related downtime and normal field declines. The net liquids component of oil-equivalent production decreased 6% to 1.34 million barrels per day, while net natural gas production increased 1% to 3.85 billion cubic feet per day.
In a 2012 first quarter statement, CEO John Watson said, "In the first quarter, we continued to post strong earnings and healthy cash flows. This has enabled us to both reward our shareholders with a substantial dividend increase, our third in just over a year, and to reinvest in profitable growth projects to help meet rising global energy demand. Our key development projects remain on track to deliver compelling volume growth over the next five years."
Chevron's earnings for the first quarter of 2012 were at $6.47 billion, compared with $6.21 billion in the comparable quarter a year ago. The company reported first quarter 2012 earnings of $3.27 per share, exceeding last year's first quarter results by 5.83%. The company had first quarter 2012 revenues of $60.71 billion, or 1.20% more compared with the prior year's first quarter results. It had revenues for the full year 2011 of $253.71 billion, 28.01% above the prior year's results. In 2011, Chevron reported a dividend of $3.09, which represents a 8.80% increase over last year, and reported annual 2011 earnings of $13.19 per share.
With the company's continued aggressive exploration plays in Australia, Indonesia, the Canadian tar sands play, and a host of others, Chevron will continue on its historical path of following a solid plan of growth for the company and for investors. I think this stock will touch $110 by mid-2013.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.