A ‘Big Oil’ Play

12/03/2007 12:00 am EST


Elliott Gue

Editor and Publisher, Energy and Income Advisor and Capitalist Times

Elliott Gue, editor of The Energy Strategist, finds big oil to his liking these days. Here, he offers his reasons for investing in an old stalwart with new growth...

Chevron (NYSE: CVX) remains my favorite among the US integrated oil companies. In contrast to Exxon (NYSE: XOM), it appears relatively cheap and also offers a superior dividend yield to Exxon. Although a 2.7% yield doesn't exactly make Chevron an income stock, it's consistently boosted that payout over time by more than 10% annualized over the past five years.

Chevron is also one of the only Super Oils that will show meaningful growth in production over the coming few years. Even more important, it's scheduled to start up four major projects over just the next two years that will generate significant production growth upside near term. Here's a quick rundown:

Tahiti is a deepwater field in the Gulf of Mexico where Chevron holds a 58% stake. The field is expected to have a peak production rate of 125,000 barrels of oil per day and 70 million cubic feet of natural gas.

Blind Faith is another deepwater development in the Gulf where Chevron has a 75% interest. Total peak production from the field will be about 45,000 barrels of oil per day and 45 million cubic feet of natural gas.

Agbami is a deepwater development offshore Nigeria in western Africa whose floating platform (the largest of its kind in the world) is capable of processing 250,000 barrels of oil per day and storing more than 2 million barrels. Chevron has a 68% interest in the field.

Finally, there's the Tengiz field located in Kazakhstan. Chevron plans to inject sour natural gas-gas with high-sulphur content-back into the Tengiz oil field to repressurize the field and increase production. First oil production should begin this quarter and add another 90,000 barrels per day. A second phase of the deal scheduled for completion in the second half of next year, will add a further 160,000 barrels per day.

There's significant scope for Chevron to generate real oil production growth in 2008. And it's worth noting that Chevron reported that the decline rate at its existing fields has slowed significantly of late. If that trend continues as new projects start up, it could offer even more upside to production volumes.

All told, Chevron's share of production from these four new projects is more than 400,000 barrels of oil per day worth of production. When you consider its current production of about 2.6 million barrels of oil equivalent per day, these projects represent 15% of the company's total production.

In addition to these near-term projects, Chevron has an impressive backlog of projects that are somewhat further from completion. Chevron Corp rates a buy.

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