Chevron (ticker: CVX) explores for and produces crude oil and natural gas around the world. In 2013, the company’s worldwide net oil production averaged 2.60 million barrels equivalent per day, with about 25% of the production coming from the United States and the rest from more than 20 other countries. The company is engaged in every aspect of the industry, including exploration and production, midstream, chemicals manufacturing and power generation.
Chevron held its 2014 Security Analyst Meeting in New York City on March 11, 2014, and projects 2017 production will reach 3.1 MMBOEPD from 2013’s total of 2.6 MMBOEPD (roughly 20% increase). The production target is lowered from the company’s initial 2017 target of 3.3 MMBOEPD due to a drop in production due to price effects, less United States-based drilling, project delays and future uncertainty. Capital expenditures remain unchanged and will stay close to $40 billion through 2017.
CVX expects its cash flow from operations to exceed $50 billion in 2017 (roughly 43% higher than 2013’s total of $35 billion). Upstream resource inventory also rose by 67.8 billion BOE (4% increase) and 12 high impact wells are planned to be drilled in 2014. Asset sales through 2017 are expected to return roughly $10 billion.
What Will Happen by 2017?
As indicated by the chart below, the majority of CVX’s projects in the upcoming years will specifically focus on oil production in North America (particularly the Gulf of Mexico, Canada and the Permian Basin) and the enhancement of its LNG projects in the Asia Pacific. Its endeavors in North America and the Asia-Pacific will each account for 34% of capital spending through 2017, with Africa, Latin America, Europe, Eurasia and the Middle East garnering the remaining 32%. The Australia LNG projects will be a focus of its Asia-Pacific spending, which, in addition to deepwater opportunities, is projected to hit peak spending in 2014. Roughly 60% of capital will be allocated to upstream advancements through 2017.
Despite the LNG investment, CVX management said it has always been a liquids-focused company. Its resources flow in the United States has consisted of at least 60% liquids since 2004, which is enough to be the largest liquids producer in the country. Chevron’s stake hold in the Permian Basin has been a driver for boosting production, and the company has responded by increasing its interest.
Currently, CVX is the second-largest producer of the Permian and holds 1.9 million net acres in the region. Approximately 10% of the entire Delaware Basin is held by CVX. Production from the Permian is expected to nearly double by 2020, with rates forecasted to reach 250 MBOEPD on as many as 50 rigs. Much of the return is expected to be through organic development.
As noted by the chart below, the Gulf of Mexico and offshore Africa are each in line for eight new projects by the year 2020. While the attention to the Asia-Pacific appears to be less dominant on paper, CVX believes its operations in the region will add as much as 300 MBOPD in production once the LNG projects are fully operational. If achieved, the region would account for more than half of Chevron’s projected production increase by 2017.
Investing in Shareholders and Reserves
New recovery methods on its shale and tight resources have offset production declines. The company also credited its exploration success, which was 59% in 2012 and 56% overall since 2003, to restocking its reserves. Total exploration resource replacement since 2003 is 120%. Management said yearly production from its legacy assets actually declined by 14% in 2013 but its exploration and replacement efforts cut the decline to less than 3% overall.
CVX management said it will continue to direct cash flow into its stock repurchase program. The company has spent roughly $40 billion on repurchases since 2004, and management says the company has outpaced the entire S&P 500 index by nearly 50% for the same time period. CVX anticipates reaching $60 billion in cash flow by 2020 – an increase of roughly 70% compared to 2013.
CVX News Release (03.11.14) – Chevron Reaffirms Strategies, Highlights Performance, Portfolio and Future Growth
Click for CVX Presentation and Supporting Materials
Click for CVX Analyst Day Webcast
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