by Morgan Smith
Given the consistent worldwide reliance on oil, I expect Chevron (CVX) to continue to grow, accompanied by an increasing stock price in the future. Chevron is working to expand its production of oil and gas. Chevron is also attempting to produce more environmentally-friendly types of energy, which are becoming increasingly important in the world today. When considering these examples of growth, I believe that this is a really good investment opportunity.
Chevron's former CEO David O'Reilly recently stated that he believes the United States will continue to import oil for the next 20 to 25 years, even with the current surge of domestic production from shale basins like those in North Dakota. This is not good for the United States, as it is more costly to import oil than to produce it domestically, and large amounts of oil usage are not good for the environment. This does demonstrate the worldwide importance of oil, however, with one of the largest economies being extremely dependent on the resource. This also suggests that there will be a continued demand for Chevron's main product, which is a great thing from the company's standpoint.
While predictions about the future reliance on oil are good signs for Chevron, the company has endured occasional setbacks with its attempted expansion of natural gas and oil. That being said, Chevron is not without opportunities to increase its expansion of operations and production. One major setback Chevron has faced is in Romania. The company's plans for exploratory drilling for shale gas in the area have been halted, and they may be delayed for the rest of the year as well.
Hydraulic fracturing has continued to be under scrutiny in most of Europe, and this is the cause of Chevron's delays. On one hand, Poland is promoting the use of hydraulic fracturing as a way to increase domestic production of oil and gas. This would allow Poland to be less dependent on Russian-produced resources, so there are definite benefits to it. In contrast, there are other countries in Europe, most notably France, that have banned hydraulic fracturing, giving environmental concerns as a reason for the ban.
For the time being, the Romanian government has paused all exploration via hydraulic fracturing. At the very least, this pause will stay in effect until the European study of its environmental impact has been completed. While this is clearly a setback for Chevron, it continues to believe that hydraulic fracturing is not dangerous to the environment. If this turns out to be true, the future should still be very promising for the company.
While looking for more global expansion opportunities, Chevron has taken an interest in the Arenque Block of mature oilfields currently owned by Mexico. Petroleos Mexicanos is the monopoly owner of Mexico's energy exploration and production segment, and it has put the Arenque Block up for auction. Both Chevron and Exxon Mobil (XOM) once held assets in Mexico's oil production and exploration, but they lost them when Mexico nationalized the segment in 1938. Chevron's interest in Mexico's oilfields shows its dedication to expanding its oil production internationally.
Given the negative environmental impacts of gasoline use and the limited amount of available crude oil, Chevron is also making an attempt to progress in other parts of the energy sector. Chevron is partnering with APC Group to construct a geothermal power plant in the Philippines. According to APC Group's chairman, Chevron will need to continue experimental research in the area to confirm that there will be enough steam energy resources available.
This is not the only partnership that may work in Chevron's favor, as it is currently exploring an opportunity through its joint venture with ConocoPhillips (COP). This joint venture is called Chevron Phillips Chemical Company, and it has signed a deal with the Iraqi government to explore the possibility of developing a petrochemical plant within the country's borders. Chevron Phillips will evaluate the ideas of constructing a new plant and updating a petrochemical factory that already exists in the southern part of the Basra province.
Iraq holds huge crude oil and natural gas reserves, and it makes more than 90% of its official income through crude oil sales. The Iraqi government does not want to be so dependent on crude oil sales, so it is looking into increasing petrochemical production. If Chevron can immerse itself into the petrochemical production in Iraq, and the government stays committed to improving production, this would be a huge first step for Chevron in boosting its profits. This would benefit ConocoPhillips as well, so investors should keep an eye on this situation if they have shares in either stock.
Chevron is not without competition in its expansion from oil and gas production. Exxon Mobil is considering an extension of its petrochemical complex near Houston. The company believes the expansion in Baytown would add 10,000 temporary construction jobs and 350 permanent jobs once it is completed. This expansion would be a very good move for Exxon Mobil. It would lead to good publicity, as the American economy is struggling to add jobs. Furthermore, it would increase the company's petrochemical production, which should lead to increased profitability. Investors should watch this situation closely, as it could have great impact on the stock as it develops further.
On a different note, Chevron is also looking to gain some positive press with the 3-year partnership it recently signed with the U.S. Golf Association (USGA). The sponsorship is worth $12 million, and Chevron will use marquee golf events to promote education in science and technology. Chevron will relate golf to science through the physics of the game. Chevron joins American Express (AXP) and IBM (IBM) as the USGA's primary sponsors.
Chevron's expansion of its oil and natural gas production should lead to increased revenues for the company. The company offers a highly-demanded product, and more production should eventually lead to higher profits. Paired with the company's expansion of other energy sources, Chevron should start to see an increase in the company's value and higher return on investments for shareholders. Taking these recent developments into account, I would recommend investing in Chevron.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.