Chevron Corp., which opened its wallet in a big way last fall with its nearly $5 billion purchase of U.S. shale producer Atlas Energy Inc., sees natural gas as the highway to the future. And it's banking on it.
The long-term strategy for the San Ramon, CA-based supermajor is gas-weighted, exploration and production chief George Kirkland said last Monday. He told investors at the company's annual conference that over the next three years 22 upstream projects are expected to ramp up with an investment of at least $1 billion.
Capital spending in 2011 is set to jump 20% over 2010 to $26 billion, and more than 40% of the total budget is for global gas projects, Kirkland told investors.
"We continue to advance our major capital projects and we are on track to meet key project milestones," he said. "Longer term, our early, low-cost entries into new acreage will generate opportunities for further organic growth. We believe this differentiates us from many of our competitors and will provide superior financial results."
The reason Chevron has focused on gas developments is simple, he said. Chevron has "over 150 Tcf of natural gas resources" spread across the globe. Today it has an estimated 35 Tcf in the Americas, 80 Tcf in the Asia-Pacific, 25 Tcf in Africa and 15 Tcf in Europe, Eurasia and the Middle East.
Acquisitions in 2010 gave the producer a lot to look forward to. It now has 14 million acres in its North America portfolio, and last year set its flag in domestic shale, oilsands, the Beaufort Sea, and in the Gulf of Mexico's Shelf and ultra-deep waters.
The biggest single acquisition by far was the buy-out of Pittsburgh's Atlas Energy Inc. for close to $5 billion, which by itself gave it close to one million acres in several shale basins (see Daily GPI, Feb. 10; Nov. 10, 2010).
Close to one-half million acres were added in the Marcellus Shale, as well as more than 600,000 acres in the Utica play. Chevron also gained close to 370,000 acres in Michigan in the Antrim Shale (270,000 acres) and the Collingwood/Utica play (100,000 acres) (see Daily GPI, May 10, 2010). In addition, there are 120,000 acres to develop in the Chattanooga Shale of Tennessee and 123,000 acres in the New Albany Shale in Ohio.
Chevron also has 200,000 acres in Canada's shales, where the exploration program is to begin this year. In Poland it added 1.1 million acres and is completing a seismic program; drilling also is to begin later in the year. In Romania Chevron now has shale blocks covering 2.1 million acres.
Overall, it's a very good queue" of shale assets but the company will continue to be "very selective" about where to invest development money, Kirkland said. The biggest shale-related investment for 2011 is in the Marcellus Shale, where Chevron plans to drill about 70 wells in the Marcellus Shale. Average 2011 production is forecast at 115 MMcf/d.
To get the most bang for its buck, liquefied natural gas projects in Australia will be the company's major focus in 2011. The U.S. portfolio won't be neglected, but in the onshore, U.S. gas prices need to be will need to be in the "$6s and $7s" to sustain domestic shale production at current levels, said Kirkland. For now, "we are positioned for ramp-up of multi-year development program," Kirkland said of the shales.
Last year most of Chevron's production was in North America, where output was estimated at 770 million boe/d. The Asia-Pacific region contributed 720 million boe/d, while Europe, Eurasia and the Middle East added another 710 million boe/d. Output from Africa and Latin America was estimated at 700 million boe/d.
"Upstream continues to execute the right strategies," said Kirkland. The unit expects to grow profitably in core areas and build new legacy positions through, among other things, commercializing large gas resources.
Jim Blackwell, executive vice president of Technology and Services, added that "there is broad consensus on the growing role of natural gas in the world's future energy mix. The center of growth will be Asia, and Chevron is the best positioned international oil company to supply that growing demand."
CEO John Watson told investors that gassy projects will take precedence this year.
"We see the best opportunities to commercialize on our very large natural gas resource base that's centered in Asia, while de-emphasizing the opportunities in the refining and marketing business, where for a decade we haven't felt the returns quite as strong in that segment of the business," Watson said during an interview on CNBC.
Chevron also is the largest leaseholder in the GOM, and Watson said he was confident that the industry would get back to business over the coming months. Offshore safety standards, he noted, already have improved since last year's Macondo well blowout.
Overall, the company plans to raise total production by 1% this year over 2010. About one-third of the total capital spending, or 35%, will be directed to boost output in the Americas, with another 35% to be spent in Asia. In addition, 20% of spending will go to African projects, while 10% will be invested in Europe, Eurasia and the Middle East operations. Included are plans to drill the company's first shale wells in Poland.
Based on its forecasts, Chevron expects 2011 production to be 2.79 million boe/d, which is up from 2.763 million boe/d in 2010.
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