Financial Times: ChevronTexaco looks back to the future: “Chevron is the only one of the six supermajors to have found more new oil than it has produced over the past four years.”: "We've got tremendous asset positions in key areas around the world," says Mr O'Reilly, shrugging off concerns expressed by some analysts that it lacks the strength in depth of rivals such as ExxonMobil, BP and the newly merged Shell group. (ShellNews.net)
By Doug Cameron
Published: November 2 2004
Dave O'Reilly has been looking back in order to look forward, reading up on the history of ChevronTexaco's legacy companies ahead of the 125th anniversary of the second-largest US oil and gas group at the end of last month.
"There's been a lot of smart moves," says Mr O'Reilly, chairman and chief executive, pointing to its lead in developing Saudi Arabia's reserves in the 1930s.
But four years after the merger that created the company, Mr O'Reilly faces the challenge of navigating what he calls "a flat spot" in its production profile, with key investment decisions due on projects aimed at returning to growth from 2008 and beyond.
"The project backlog is very good for the next three or four years. The question is - what do you do after that?" asks Bruce Schwartz at Standard & Poor's, the credit rating agency.
Chevron provides a snapshot of the dilemmas facing the supermajors, navigating the opportunities of reserves in emerging markets and an increasing focus on the potential of gas to compensate for declining oil production from mature fields, notably in North America. But while rising oil prices have allowed energy groups to cut debt and rebuild balance sheets, the cost of finding and extracting oil and gas continues to rise.
Chevron is the only one of the six supermajors to have found more new oil than it has produced over the past four years.
It has also delivered on its pledge to outperform peers in terms of shareholder return. The investment challenge is to convert its strength in finding oil in the deep waters off west Africa and execute its strategy of bringing large liquefied natural gas projects - notably off the coast of Australia and in Qatar - profitably to market.
"We've got tremendous asset positions in key areas around the world," says Mr O'Reilly, shrugging off concerns expressed by some analysts that it lacks the strength in depth of rivals such as ExxonMobil, BP and the newly merged Shell group.
However, he is aware that investors are focused on its next moves in two key areas: monetising the huge Gorgon gas field off the coast of Australia and finding its feet in the Russian market.
The Australian assets are the key plank of Chevron's play in the LNG market and it expects to make a final decision on developing Gorgon next year, having secured initial permission to create the transport infrastructure.
"It becomes a really critical project for us," says John Gass, president of Chevron's newly created global gas business.
He is confident it will go ahead, citing positive signals from potential customers in China and North America, in spite of concerns among some analysts that the Asian market risks becoming saturated, given the large development programmes in train.
"Gorgon is there, fighting to get its place in the queue," says Mr Gass.
While gas projects in Angola, Nigeria and Venezuela are also seen as promising, and Chevron has enjoyed recent success in the deep waters of the Gulf of Mexico, analysts believe another play is required.
"To sustain any gains that may be achieved in the near-to medium-term relative to its peers, ChevronTexaco must progress long-term new ventures efforts," says Lou Gagliardi, analyst at John S Herold.
And that, in most observers' eyes, means Russia, home to the world's largest oil and gas reserves.
While active in the fields around the Caspian Sea, Russia remains a gap at a time when smaller rival ConocoPhillips has snuggled up to Lukoil after its purchase of a 7.6 per cent stake, and ExxonMobil is established in the Sakhalin fields in the far east.
After flirting last year with Sibneft, the oil group controlled by Roman Abramovich, Chevron is now examining a tie with Gazprom, the state-controlled gas monopoly.
In September, the two companies announced a memorandum of understanding to explore a wide-ranging alliance focused on LNG. Mr O'Reilly expects the project groups to report back in the first quarter of next year but declines to prejudge the potential.
"We [would expect] healthy development opportunities, but we have to let that one run."
Mr O'Reilly declines to comment on the potential for taking a look at Sibneft, now seen as in play again after its abortive merger with Russia's Yukos. However, Mr O'Reilly notes that the agreement with Gazprom is non-exclusive. "If an opportunity came along, we'd obviously want to look at that," he says.