Chevron Corp. CEO John Watson said Thursday the buy-out of Marcellus Shale player Atlas Energy Inc. didn't signal a fundamental shift in the company's strategy; rather, it was an attractive opportunity that came at the right time.
Watson, who spoke to energy analysts at the Bank of America Merrill Lynch Global Energy Conference, offered a bit of color to the $4.3 billion tie-up with Atlas, which was announced on Tuesday (see Daily GPI, Nov. 10).
"We will acquire more companies going forward but we have a good portfolio and we are not in a position where we have to do a particular type of acquisition," Watson said. "If we see something that would nicely match with what we have, we would consider it."
The Atlas transaction had "all the ingredients" that made it attractive to Chevron, he said. "We view the Marcellus as one of the lowest cost natural gas supply source in North America." Any future transactions would be driven by "economics" instead of a need to add a certain type of resource to Chevron's portfolio, he said.
Chevron plans to increase output at Atlas to 100,000 boe/d from the current production of 13,000 boe/d, said the CEO. Gas production from the assets is forecast to reach 500 MMcf/d in 10 years.
Overall, Chevron's portfolio projects "tilt" more toward upstream projects and are more oil-weighted, Watson said. However, by 2017, total gas production is expected to represent 41% of the company's portfolio, up from 31% this year.
Liquefied natural gas (LNG) production alone is expected to be about 20% of the portfolio, up from the current 6%. With several LNG projects being readied worldwide, the CEO said Chevron eventually will become one of the top five LNG producers worldwide based on liquefaction capacity.
Total gas and oil output is forecast to increase by 1% a year over the next four years and then increase 4-5% per year from 2014 to 2017, he said.
Chevron affirmed its full-year 2010 production guidance and said net output is expected to rise 2% from actual net production in 2009 to 2.75 million boe/d, based on the first nine months' 2010 average West Texas Intermediate crude oil price of $78/bbl.
Ten projects each costing at least $1 billion are scheduled to ramp up worldwide in 2010 and 2011, Watson told analysts. Final investment approvals are to be decided on another 15 ventures by 2012; each also carry a price tag of at least $1 billion.
In their review of the Atlas acquisition, analysts at Fitch Ratings said "Chevron's ability to exploit the new acreage as well as leverage Atlas' technical capabilities in shale gas extraction across the combined entity's broader portfolio is likely to be a strategically important part of the acquisition; therefore retention of key Atlas geological staff is likely to be critical to the success of the acquisition going forward."
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