A Solid Long-Term Energy Stock
Mar 22nd 2012 10:25AM
Updated Mar 22nd 2012 10:26AM
If you find energy to be an attractive sector for the next five years, then there is a strong case to be made for big oil companies. In this instance, I'm specifically focusing on Chevron (NYS: CVX) , whose recent Security Analyst Meeting for 2012 outlined a bright future for this integrated oil giant.
It was perhaps unsurprising to hear CEO John Watson kick off proceedings by putting a special emphasis on the company's safety culture. After all, an oil spill off the Brazilian coast in December gave Chevron's image a beating. Further emphasizing the focus, a slide in the presentation stated, "There is always time to do it right." There's truth in that statement, of course, but the onus is now on the company to prove these aren't empty words.
A potential game changer
Taking a look at operations, Chevron intends to increase production of oil and gas by roughly 22% by 2017, to 3.3 million barrels of oil equivalent per day from its current rate of 2.7 MMBOE. For an integrated oil and gas company with a market cap of $217 billion, this is decent growth. However, production growth will not be uniform.
Until 2014, management expects to see an annualized growth in production of a single percentage point. But from then on, growth is expected to shoot up to 4% to 5% per annum. For those who are aware of the company's expansion plans, this shouldn't come as a major surprise. The liquefied natural gas projects -- Wheatstone and Gorgon -- off Australia's shores are expected to come on line by 2015. These projects, I believe, will be game changers in the Asian natural gas markets where emerging economies are expected to drive up demand for the commodity. The involvement of E&P majors such as Royal Dutch Shell (NYS: RDS.A) (NYS: RDS.B) , Apache, and ExxonMobil shows how big these projects really are.
While the projects in Australia are hogging the limelight, Chevron has been quietly developing its LNG facility off the West African coast of Angola. With the first cargo expected to be shipped out by the second quarter this year, production is expected to peak at 175,000 BOE/D. Chevron's entire portfolio of LNG production is expected to be ramped up by 460,000 BOE/D. In other words, LNG projects constitute a staggering 77% of the entire production growth that is expected.
Refining and marketing: modest but promising
In comparison, however, Chevron's growth plans for its refining and marketing operations are more modest. After last year's fourth-quarter losses in this segment, downstream operations are seemingly the weak point for this company. Once again, Asia seems to be the driving force behind its targeted 10-year growth of 18% by 2020. This is led by an 83% growth in premium base oils. Strategically, Chevron seems to have gotten the equation right. Transport fuel consumption in Asia is expected to grow rapidly over this time frame.
Foolish bottom line
Chevron seems to be on the right track for growth with great long-term potential. A decent dividend yield of 2.9% is another reason why you should consider it. In the meantime, we'll bring you the latest news and analysis on Chevron if you add the company to your watchlist.
Also, if you're enthused about the entire energy sector, uncover some other strong energy players right here in The Motley Fool's special free report on the energy industry. It's free for a limited time, so click here today.
At the time this article was published Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Chevron and ExxonMobil. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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