Chevron Corp.'s portfolio is now in a position to sustain growth through the rest of the decade and is "not particularly needing to do a large transaction" in a North American shale gas play, CEO John Watson said Friday.
Speaking with financial analysts to discuss the company's performance in 4Q2009, Watson said ExxonMobil Corp.'s decision to buy onshore shale producer XTO Energy Inc. was duly noted, but, "I haven't felt there were opportunities out there that can compete with what we have in our portfolio." ExxonMobil announced the $41 billion acquisition of XTO in December (see NGI, Dec. 21, 2009).
However, Chevron already has a strong gas portfolio in North America, Watson noted. The producer has ongoing tight gas development in the Piceance Basin of Colorado, where it is building capacity to produce 60 MMcf/d. Chevron also has a "nice presence" in the Haynesville Shale, property in Canada and an emerging development in Poland.
"You know me, you know us, we are always screening opportunities in the upstream business," said the CEO. "It's a resource business and we're in the business of acquiring leases...when the conditions are right...and we just haven't felt they were right in shales or otherwise in the very recent past."
Watson was elected chairman and CEO of Chevron last year, and he took over on Jan. 1, replacing long-time chief Dave O'Reilly. He joined Chevron in 1980 and 20 years later led the company's integration effort following the Chevron-Texaco merger.
"Ultimately, everyone has to continue to add resources to the queue going forward, either through the exploration company organically or otherwise," Watson told analysts. "Longer term, we are always looking for new opportunities. But in the shorter term, we can look out through the better part of this decade and see growth in our portfolio. We have a good queue going out over this decade.
"The upside in the near term is how rapidly and quickly we can advance new technologies to increase recoveries...The ability to add to our portfolio going forward is a function of having an offering that holds value...We have some length in our portfolio with the assets we have, but we need to capture new opportunities through new acreage or on the acquisition side over time."
Chevron is pulling back on its gas exploration efforts in North America this year, but its conservative approach will extend to all of its operations until the economy improves, CFO Pat Yarrington told investors. Three of the four major projects expected to be sanctioned this year are in the deepwater Gulf of Mexico (GOM): Tahiti Stage No. 2, Jack/St. Malo and Big Foot. Also under way are ramp-ups of liquefied natural gas operations in Australia, where the Gorgon and Wheatstone projects are in development.
About 80% of the $17 billion capital spending budget in 2010 is to be directed to large, multiyear projects, said Yarrington. One of the biggest start-ups for 2010 is the Perdido Hub in the GOM, which is in the deepest waters of any such facility in the world (see NGI, March 23, 2009). Shell Oil Co. holds a 35% stake and operates the hub on behalf of its partners Chevron (37.5%) and BP plc (27.5%).
The San Ramon, CA-based major reported that profits fell 37% in 4Q2009 from the same period a year ago to $3.07 billion ($1.53/share) from $4.9 billion ($2.44). Sales and operating revenue in the last three months of 2009 were $10.48 billion, down 56% from a year earlier.
U.S. upstream earnings were $1.04 billion in 4Q2009, down $105 million from 4Q2008. Operating expenses were lower between periods, while depreciation expense was higher. The average sales price of natural gas was $4.23/Mcf, down from $5.23 in 4Q2008. The average sales price for crude oil and natural gas liquids was $67/bbl in 4Q2009, compared with $49 a year ago.
Domestic net production of 751,000 boe/d in the final quarter was up 132,000 boe/d, or 21%, from 4Q2008. Chevron attributed to production jump with ramp-ups of the deepwater GOM Blind Faith and Tahiti fields, which started producing in late 2008 and mid-2009, along with the restoration of volumes that were offline in 4Q2008 because of hurricanes. The net liquids component of production was up 30% to 518,000 b/d, and net natural gas production of 1.40 Bcf/d increased 6% between periods.
Watson blamed the earnings declines on lower crude oil and natural gas prices, as well as a decline in refined product sales margins, which were driven by a "weak global economy. "In this challenging environment, Chevron's successes in operational reliability and cost management made valuable contributions to our bottom line," he said. And in fact, aggressive cost cutting moves worked, resulting in a 15% decrease in operating, selling, general and administrative expenses in 2009 compared with 2008.
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