Chevron (NYSE:CVX) plans to spend tens of billions of dollars in capital in 2012, as the company works to increase production to 3.3 million barrels of oil equivalent (BOE) per day by 2017. This would represent a 20% increase over 2010 production levels. (Find out how to invest and protect your investments in this slippery sector. For more, see What Determines Oil Prices?)
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2012 Capital Budget
Chevron recently announced a $32.7 billion capital budget for 2012, with 87%, or $28.5 billion devoted to the upstream segment. The company will spend $6.2 billion in the United States and the balance on various international projects. In 2011, Chevron estimates the company will spend $28 billion in capital, excluding the $4.5 billion used to purchase Atlas Energy. (To know more about oil and gas, read Oil And Gas Industry Primer.)
In Australia, Chevron is working on two large liquefied natural gas (LNG) projects. The Gorgon LNG project has been under construction since 2010 and is expected to start production in 2014.
The Wheatstone LNG project was recently approved by the company and Chevron plans to start construction in 2012. The company expects first production from Wheatstone LNG in 2016 and estimates that these two LNG projects will add a combined 350,000 BOE per day of production.
Onshore North America
Chevron has built up a large acreage position in the North American onshore, and will spend heavily on development here in 2012. These promising areas include 700,000 net acres exposed to the Marcellus Shale, and 140,000 net acres in the Permian Basin exposed to the Wolfcamp.
Chevron has also established exploratory acreage prospective for the Utica Shale in Ohio and the Duvernay formation in Alberta.
Gulf of Mexico
Chevron has also made substantial investments in the Gulf of Mexico and has two projects expected to start up production in 2014. These include Jack/St. Malo and Bigfoot in the deepwater area of the Gulf of Mexico.
Another operator active in the Gulf of Mexico is Anadarko Petroleum (NYSE:APC), which has three million gross acres to explore. One prospect the company is working on is the Lucius field, which is estimated to contain 300 million BOE of resources. Anadarko Petroleum is partnering with Exxon Mobil (NYSE:XOM) to develop this field and expects first production in 2014. Other companies involved with the Lucius field include Eni (NYSE:E), Apache (NYSE:APA) and Petroleo Brasileiro (NYSE:PBR).
Chevron has budgeted $3 billion in capital to support exploration activities across its portfolio. The company has targeted this exploration spending in Liberia, China, Australia, West Africa and the Gulf of Mexico.
In Eastern Europe, Chevron is pursuing shale and other unconventional formations and has amassed more than four million acres in Poland, Bulgaria and Romania. The company plans to start drilling in Poland in the final quarter of 2012 and will acquire seismic data in Romania and Bulgaria in 2012.
Exploration is an important part of the company's efforts to grow production long term, and Chevron has a 47% exploration success rate that has added 9.6 billion BOE of reserves since 2002.
The Bottom Line
Chevron is sticking with the integrated oil and gas business model, as it resists the recent trend in the industry towards simplification. Investors will monitor the company closely in 2012, and Chevron expects that the $28.5 billion upstream capital budget will bring it closer to its 2017 production goals. (For additional reading, check out A Guide To Investing In Oil Markets.)
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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.