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By Ian Wyatt, NewsletterAdvisors.com |
CVX | Jul 28, 2008 |
Chevron: More Than Just "Big Oil"
By Ian Wyatt, Chief Investment Strategist, NewsletterAdvisors.com
Paul Tracy, founder of StreetAuthority.com, likes this well-known, second-largest U.S.-based integrated oil company--Chevron Corp. (NYSE:CVX)--for its growth potential over the next three years.
Tracy attributes the anticipated spurt to several projects, including the start of production at the company’s Agbami deepwater oil project in Nigeria by the end of 2008. With a 68% stake in the field, Chevron’s share could reach 150,000 to 200,000 barrels of oil per day from the field over the next two years.
Chevron is also looking to begin production from two large deepwater projects in the Gulf of Mexico with a combined production of 100,000 barrels of oil per day, according to Tracy.
Though these are Chevron’s most advanced projects, the company has several more on the backburner in the Gulf and internationally, he adds.
Management believes Chevron can produce around 3 million barrels of oil equivalent per day in 2010, up from about 2.6 million today.
In addition, Tracy says that Chevron has significant exploration upside. The company plans further exploration work on two major Gulf of Mexico deepwater fields --St. Malo and Jack--for 2008. If those wells pan out, the company would likely boost reserve and production estimates.
Also on the front burner: liquefied natural gas. "My staff and I like Chevron’s burgeoning liquefied natural gas business," says Tracy. Natural gas is comprised primarily of methane, a colorless hydrocarbon gas. "Or at least it’s a gas at room temperature," he says. "When cooled to -160 degrees Celsius (-260 degrees Fahrenheit), natural gas liquefies. LNG can be loaded onto tanker ships and shipped anywhere in the world, just like crude. The U.S., EU, and Asia are projected to become far more dependant on LNG imports in coming years," he says.
As a result, Tracy thinks the firm looks like a promising play on growth in demand for LNG. He adds that Chevron is one of only a handful of firms with the scale to pursue multi-billion dollar deepwater and international oil and gas development projects. And it’s not just size; CVX has completed several large-scale projects and has significant experience and know-how when it comes to completing such deals, according to Tracy.
Finally, Tracy points out that Chevron owns some attractive refining assets with fat margins on the West Coast. No new refining facilities have been built in the U.S. in more than 30 years, and getting permission to build a new refinery today would be difficult because of local opposition and environmental issues.
"Therefore, companies with an attractive base of refining capacity are unlikely to see competition from new facilities," he says.
Eighty-percent of Chevron’s net income in 2007 came from the production of oil and natural gas, and refining and marketing refined products were responsible for the remaining profits.
Shares of Chevron have performed well in recent years but continue to trade at a discount to many of the company’s integrated oil peers. The stock trades at about 7.9 times next year’s earnings estimates, compared with 8.7 for ExxonMobil Corp. (NYSE:XOM).
Plus, its long-term projected growth rate stands at about +12.7%—with a price-to-earnings-growth rate of just 0.62%.
"Chevron should see its production pick up over the next few quarters as it opens new projects in the Gulf of Mexico, North Africa and Asia. CVX looks like a good value at current levels. I consider the stock a "buy" under $100 per share," says Tracy.
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