Chevron Corp. executives told told financial analysts Tuesday that the company would increase its production by 3% per year and that spending on exploration and production would remain strong in the coming years. In the years ahead, natural gas will account for a greater share of Chevron's production portfolio as the company strives to be a leader in increasingly globalized gas markets.

The second largest U.S. oil company's oil and gas development projects are expected to produce more than 1 million boe/d by 2011, resulting in an average annual production growth of at least 3% through 2010.

Capital spending for 2007 is expected to be $19.6 billion (see Daily GPI, Dec. 8, 2006), with 39% of that spent in North America, 25% in Africa, 19% in Asia-Pacific, 7% in the Caspian region and 10% in the rest of the world. Spending on exploration in 2007 will be a little more than $2 billion, down slightly from 2006.

One area of interest domestically is the deepwater Gulf of Mexico. In the Wilcox Trend the company is engaged in appraisal and development of discoveries while building new positions. Between now and 2009 Chevron plans a number of exploration and appraisal wells in the trend where it is a top leaseholder with more than 400 blocks. To date, Chevron has six discoveries in the trend with a success rate of 67%. Production from the Gulf's Tahiti Trend is to come online in 2008, with peak production expected to be 125,000 b/d of oil and 70 MMcf/d of gas.

Onshore in the Midcontinent Chevron boasts significant leasehold in Colorado's Piceance Basin. Permanent gas sales from the tight shale play are expected to begin in 2008. The company expects to grow production to more than 400 MMcf/d with a drilling program that entails more than 3,000 wells over the next 10 years. Chevron has a historical presence in the Piceance Basin. When asked whether they were interested in pursuing other U.S. unconventional gas plays, the Barnett and Fayetteville shales, for instance, executives said they were not changing their current scope of U.S. operations.

"We are making progress on more than 30 oil and gas development projects that represent a Chevron investment of at least $1 billion each," said CEO Dave O'Reilly. "This excellent queue of projects and our successful exploratory program are expected to contribute to an average proved-reserves replacement rate of more than 100% for the next five years."

Chevron has 12 billion boe net proved oil and gas reserves and 2.7 billion boe daily net production capacity from exploration and production activities in more than 30 countries. From 2003 to 2006 the company has grown its resource base by 8% with average reserves replacement greater than 100% since 2004. The company has 140 Tcf of equity natural gas resources, and the company says that gas production is growing to become a key component of overall production, to a large extent on the back of liquefied natural gas (LNG) projects. Citing statistics from Wood Mackenzie, Chevron claims to have the highest growth rate among all of its competitors in the LNG arena.

"With such a significant resource development opportunity natural gas will play a larger role in our future production," said George Kirkland, executive vice president of upstream and gas. "Over the next 20 years, natural gas will grow from 30% to nearly 45% of our daily production. The region with the largest commercial natural gas resources is the Asia-pacific, which includes Australia, followed by the Americas, West Africa and Central Asia. Our gas projects are targeted to supply an ever-growing and more interconnected world market.

"Our strategy is to commercialize our significant equity gas resource base and ensure we receive the highest value for our gas. To accomplish this we're pursuing growth opportunities in both LNG and GTL [gas to liquids].Growing our LNG business is central to our gas strategy."

Bobby Ryan, vice president of global exploration, said the company drilled 42 successful exploration and appraisal wells in 2006 and had an average drilling success rate of 45% over the past five years. During that period, the company added more than five billion boe to its resource base. "This is a result that cannot be easily or quickly duplicated," Ryan said. "It takes years to build the technical competency, do the basin geology and develop the integrated technologies that give Chevron a competitive advantage, and it will not be easily eroded."

Commenting on the company's oil and gas development projects, Kirkland said, "These projects deliver significant organic growth, and given where they are in the development cycle, we are confident of achieving an average annual production growth of at least 3% through 2010. Not only is the outlook positive for near-term production growth, but our exploration success continues to fill our development pipeline."

Kirkland conceded that like other operators, Chevron has seen costs rise in recent years. "We've experienced cost increases the past few years, but we are extremely disciplined in our spending on our capital projects and daily operations. In addition, given our focus on reservoir management and subsurface delineation, we have been able to mitigate production declines from existing assets and, in some cases, actually boost production," he said.

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