Chevron Looks to Eastern Europe for Shale Gas

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The second biggest American oil and gas firm, Chevron (NYSE: CVX) is gearing up for shale gas exploration in the Eastern European nation of Lithuania. The country’s officials have revealed that Chevron is in the driver’s seat to win the exploration license. According to the Lithuanian Geological Service, the country is estimated to hold shale gas reserves of up to 2.118 trillion cubic feet, enough to last for 20 years, while according to the U.S. Energy Information Administration’s (EIA) 2009 estimates, Lithuania has 4 trillion cubic feet of technically recoverable resources. Either way, Lithuania has one of the smallest European shale gas reserves but Lithuania is also very small. Currently, Lithuania imports all of its natural gas from its energy rich neighbor Russia, so this is a major development for the Baltic region.  Chevron’s move in Lithuania is an example of its drive to internationalize its portfolio after shoring up its resources back in North America.

Chevron already operates in Lithuania’s crude oil sector through its subsidiary LL Investicijos, which is 50% owned by Chevron. The two leading oil and gas firms, Exxon Mobil (NYSE: XOM) and Chevron have been increasing their international exploration portfolio, particularly in shale gas. North America is home to the world’s second largest shale gas reserves, behind the Asia Pacific region. With 862 trillion cubic feet of recoverable shale gas reserves, the U.S has the second largest reserves base behind China, while Mexico and Canada are host to 681 and 388 trillion cubic feet of recoverable unconventional fuel reserves.  Both Exxon and Chevron have made considerable inroads in tapping the American and Canadian resources and have played a significant part in increasing the U.S. oil and gas output by 30% and 20% respectively over the last five years. 

Exxon has invested $1.6 billion in Bakken shale and holds almost half of the acreage in the region. In Canada, it has invested $2.9 billion in the Duvernay and Montney shale gas formations. Chevron also holds 220,000 acres in Duvernay and 700,000 acres in the Marcellus Shale Basin of Pennsylvania, which is one of the focus areas of Chevron. Meanwhile, Chevron is also planning to purchase two shale gas fields in western Canada to supply the gas to Asian buyers from Encana Corp, EOG Resources and by partnering with Apache Corp on an LNG export terminal in a deal that is estimated to be around $1.3 billion.

Within Eastern Europe, Chevron is currently hunting for shale gas in Poland and Romania. According to EIA’s data, Romania, Hungary and Bulgaria have total share reserves 19 trillion cubic feet but Poland has more reserves than any other European nation, 187 trillion cubic feet. In the meantime, Chevron is also moving into Argentina’s shale gas sector despite opposition from Repsol. The country boasts the third largest shale gas reserves in the world at 774 trillion cubic feet. Chevron will be partnering with the struggling Argentinean government-owned oil and gas firm YPF. The two will jointly invest $1 billion to explore for shale gas in the Vaca Muerta formation of the Neuquen province.

As far as China goes, almost all of the major oil firms are involved in the country’s shale gas sector. But unlike the U.S’s upsurge in gas production that started about a decade ago, Chinese growth has been more controlled and relatively modest. Chevron has been actively involved since it started drilling in Q1 2012 and has recently announced a production sharing contract with the Chinese offshore giant CNOOC to explore conventional and shale gas in two blocks in the South China Sea.

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p>CVX</p> </td> <td> <p>XOM</p> </td> </tr> <tr> <td> <p>Stock 6M</p> </td> <td> <p>6.82%</p> </td> <td> <p>5.32%</p> </td> </tr> <tr> <td> <p>Beta</p> </td> <td> <p>1.18</p> </td> <td> <p>0.87</p> </td> </tr> <tr> <td> <p>P/E</p> </td> <td> <p>9.45</p> </td> <td> <p>9.6</p> </td> </tr> <tr> <td> <p>EPS</p> </td> <td> <p>12.19</p> </td> <td> <p>9.46</p> </td> </tr> <tr> <td> <p>Yield</p> </td> <td> <p>3.10%</p> </td> <td> <p>2.50%</p> </td> </tr> <tr> <td> <p>ROA</p> </td> <td> <p>10.25%</p> </td> <td> <p>9.31%</p> </td> </tr> <tr> <td> <p>ROE</p> </td> <td> <p>18.91%</p> </td> <td> <p>28.16%</p> </td> </tr> </tbody> </table>

 

Chevron is clearly looking to increase its operations within and outside of North America. BP’s Energy Outlook Report stated that such activities are likely to continue for the next two decades. In the last six months, Chevron’s stock has been up 6.82% while Exxon has increased by 5.32%. Both are trailing behind the SPDR S&P 500 ETF, which is up 7.95% in the same period. Exxon has traditionally been a conservatively managed company and is a relatively safer investment (which is evident in its lower beta), but Chevron offers an attractive yield of more than 3%.  Both offer investors an attractive means by which to profit from rising natural gas demand.  Buying now puts one in a good position to speculate on the future of U.S. LNG exports as well.


PeterPham8 has no position in any stocks mentioned. The Motley Fool recommends Chevron. The Motley Fool owns shares of Apache. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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