When you are as big as Chevron (CVX), it takes a lot to feed you. Chevron has been eating well though. The company continues to make smart moves into profitable plays such as gas exploration in China, the Australian LNG project, and exploration in the Gulf of Mexico. All of these are expected from a supermajor, but Chevron has the fortitude to keep a management mindset of a small entrepreneurial enterprise - staying hungry.
The company has made increases in annual EPS growth since 2002. Earnings per share have risen from $.54 per share in 2004 to $13.44 in 2011. The company continues to impress while competing with the likes of Exxon Mobil (XOM) and BP (BP). Like Chevron, both Exxon Mobil and BP must continue to creatively expand. Exxon Mobil recently expanded its shale oil operations in the United States through the purchase of quality acreage in the Bakken Shale, agreeing to buy Denbury Onshore's assets for $1.6 billion in cash and operating interests in two of its fields. The company also recently sold one of its refineries in Argentina. BP recently acquired a larger stake in the Russian state oil company Rosneft. This is all part of maintaining a giant's steady growth. Chevron will continue on this path pleasing investors along the way. That is why I believe this company to be one to buy now as a great investment for the future.
In Australia, Chevron is making great strides. The company is targeting an expansion of the $45 billion Gorgon project in 2014. Chevron is the largest shareholder in Gorgon with a 47% interest and acts as operator, while Exxon and Royal Dutch Shell (RDS.A) own 25% stakes each. Royal Dutch Shell, another giant, along with Koninklijke Vopak N.V. and Greenergy Ltd. recently completed the acquisition of the Coryton refinery in England, which was previously owned by Petroplus Holdings AG. The three companies plan to develop and invest in this facility, the Thames Oil Port, to create an import and distribution terminal for oil products to be managed by Vopak. The initial storage capacity will be around 500,000 cubic meters (CBM), with potential to expand to up to 1 million cbm in later stages.
Also in Australia, Chevron announced an agreement to exchange its holdings in the Browse Basin development, off WA's Kimberley coast, with Royal Dutch Shell. Under the agreement, Royal Dutch Shell will pay Chevron $450 million for its 16.7% share in the East Browse titles and its 20% interest in the West Browse titles. In return, Royal Dutch Shell will give Chevron its 33% interest in the Carnarvon Basin giving Chevron a 100% stake in the two Carnarvon gas fields. Last month, the company announced a natural gas discovery in the Satyr-2 exploration discovery well. While successful in the natural gas realm, the company trails Exxon Mobil and Chesapeake Energy (CHK). Chesapeake Energy has been selling off a lot of assets, but is still successful in gas. The company is hitting it big in the Hogshooter play in the Texas Panhandle, where it owns close to 30,000 net acres and discovered this summer that an exploratory well had produced an average of approximately 7,350 boe per day during its first eight days of stabilized production.
The company has expanded gas exploration in China with a range of businesses that include petroleum exploration and production and fuels and lubricants marketing. Chevron has put aside roughly $28.5 billion for exploration and production in 2012 for areas in Brazil, Africa and the Gulf of Mexico. In China, Chevron has interests in four operated and four non-operated production-sharing contracts. The total average daily production in 2011 from interests in China was 95,000 barrels of crude oil and condensate (20,000 net) and 36 million cubic feet of natural gas (10 million net). The company operates the 487,000-acre Chuandongbei natural gas area in the onshore Sichuan Basin, where Chevron has a 49% interest. Chuandongbei is one of the large capital projects Chevron is developing in 2012, with cost so far of $4.7 billion. Rival Royal Dutch Shell is planning to spend at least $1 billion per year exploiting China's shale gas. China is estimated to hold the world's largest reserves of the unconventional gas that can be removed using the North America technology of hydraulic fracking. Additionally, Royal Dutch Shell is aiming to build a $12.6 billion refinery and petrochemical complex in eastern China, a project that could become the single largest foreign investment in China.
In the Gulf of Mexico, Chevron is one of the top leaseholders. Key producing assets include Tahiti and Blind Faith, the company's deepest operated offshore production facility. The company began development drilling for Jack/St. Malo and Big Foot in 2011. Apache (APA) and Anadarko Petroleum (APC) are both finding success in the Gulf. Apache has assets primarily located in and along the Gulf of Mexico, in the areas onshore and offshore Texas, Louisiana, Alabama and Mississippi. The company was recently the highest bidder on 90 blocks in the Bureau of Ocean Energy and Management's recent lease sale in the Gulf of Mexico. Apache is currently operating six rigs in the Gulf. Earlier this summer, Anadarko announced a joint venture agreement with an undisclosed party giving Anadarko ownership in the Gulf of Mexico Lucius development project. Under the terms of the agreement, Anadarko will be carried for $556 million. In exchange, Anadarko will convey a 7.2% working interest in the Lucius development and will continue as operator with a 27.8% working interest.
Chevron reported second quarter 2012 earnings of $3.56 per share, and had second quarter 2012 revenues of $62.61 billion, 3.13% above the prior year's second quarter results. The company had revenues for the full year 2011 of $253.71 billion, 28.01% above the prior year's results. Year on year, the company grew revenues 23.80% from $204.92 billion to $253.70 billion while net income improved 41.37% from $19.024 billion to $26.89 billion. In 2011, Chevron increased its cash reserves by 12.83%, or $1.804 billion and the company earned $41.09 billion from its operations for a Cash Flow Margin of 16.20%. In addition the company used $27.48 billion on investing activities and also paid $11.77 billion in financing cash flows. For the first two months of the September quarter, the company reported that oil and natural gas production averaged 2.518 million oil-equivalent barrels per day as compared with 2,599 oil-equivalent barrels per day recorded in the third quarter of 2011, due to reduced volumes both in the U.S. and overseas.
Chevron is on fire and I believe it will continue down this path of prosperity seeking new, smart plays in all parts of the world. It is a company to buy for the smart investor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.