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Shale Is a Long Game for Chevron

It's early days in Chevron Corp.'s shale natural gas and oil program, but it is "an area of significant long-term growth" with opportunities in the United States, Canada, Argentina, China and Europe -- in liquids and dry gas -- an executive said during the company's analyst day Tuesday.

"Just like we do for deepwater and heavy oil, we'll take a global approach to unconventional resources," Gary Luquette, president of Chevron North America Exploration and Production Co., told financial analysts. "This is consistent with our strategy to get into the right plays early and to focus on organic growth. This asset class is early in life and our production today is relatively small. We see it as an area of significant long-term growth."

Chevron Corp. CEO John Watson said the "return-driven" company sees shale gas as "a long-term play in our portfolio."

The company holds more than eight million acres of leases around the world that have unconventional potential, he said. "We also have a leading position in some of the key liquids-rich shales. With our legacy acreage, we're able to make selective investments to improve our understanding of sweet spot. And in the case of our North American dry gas assets, we're able to preserve our options for better market conditions."

Last year Chevron closed on its $5 billion acquisition of Pittsburgh-based Atlas Energy Inc., giving it 486,000 net acres in the Marcellus Shale and 623,000 in the Utica Shale as just part of the package (see Shale Daily, Nov. 10, 2010). Last year it also acquired another 228,000 net acres in the Marcellus from privately held Chief Oil & Gas LLC and Tug Hill Inc. for an undisclosed amount (see Shale Daily, May 5, 2011).

"...[W]e've built a strong position in the Marcellus and Utica shales," Luquette said. "After an active Marcellus drilling program in the past year, our early well results indicate a high-quality resource, and reservoir outcomes are exceeding our expectations.

"With natural gas prices where they stand today, we're investing at a measured pace. Our objectives are to drill our leases where justified, to use our remaining $1.3 billion [drilling] carry and to grow our execution capability. We're positioned to further ramp up drilling and production once the gas market improves."

In the Utica Shale Chevron is "executing our exploration and appraisal activities in 2012, including drilling wells, acquiring seismic and thoroughly analyzing nearby competitor activity," Luquette said. "Our objective is to increase our understanding of the Utica's potential and be in position to accelerate development when appropriate.

"As companies buy into shale plays like these, they make headlines. What doesn't make headlines is that we've held acreage in multiple shales for decades."

In the Lower 48 alone, Chevron has more than three million acres in unconventional plays, he said, mostly shale. "In contrast to some of our competition, much of this acreage is either held by production or fee, allowing us to pursue the most attractive projects instead of drilling to earn leases. Our positions are also well placed with many of the plays located in wet gas and liquids trends."

In Texas Chevron has had "noteworthy success" in the Midland Basin Wolfcamp play, Luquette said. "We recognized significant resources in 2011, and we plan to participate in more than 200 wells this year as we continue to develop our acreage.

"In the Delaware Basin [of Texas and New Mexico] we also have a significant position: more than half a million net acres of Wolfcamp Shale and more than 100,000 acres of Avalon Shale, both of which are wet gas plays and part of our legacy leasehold," he said. "This year we plan to drill up to six operated wells. We'll also continue to leverage our nonoperated positions with an additional 16 wells planned to accelerate evaluation of this play."

In the international shale arena, as is true for other companies, things aren't nearly as far along.

However, since entering Poland in 2009, Chevron has built a position of more than four million acres across central Europe. "In Poland, we finished drilling our first well in February and also completed our initial 2D seismic acquisition program," Luquette said. The company plans to spud its second Poland exploration well soon.

In Romania Chevron has acquired 2D seismic and expects to start its drilling program late this year. Like other companies, it is awaiting the resolution of a moratorium on hydraulic fracturing in Bulgaria. "We're engaging with the government and believe that industry will be able to successfully allay their concerns," Luquette said. "However, in the unlikely event we're not successful, we have minimal financial exposure in Bulgaria."

Chevron is also ramping up its activity in Alberta's Duvernay Shale formation. "In 2011 we increased our position to about 250,000 acres. This is another shale with significant liquids potential," Luquette said. "Early results from our drilling program have been encouraging and we plan to drill and complete additional wells as part of our continued evaluation of this play."

In Argentina Chevron has about 110,000 shale acres below a currently producing field. "Our leases there are well positioned with liquids potential," he said. "We recently extended our lease to 2032 and our plans are to begin initial exploratory drilling this year."

And in China the company is participating in a joint study agreement with Sinopec covering about 940,000 acres. "We've already completed acquisition of 2D seismic and spud our first well earlier this year," Luquette said.

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