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Chevron to Boost Oil, Gas Production

Posted on: Tuesday, 7 March 2006, 15:01 CST

By BRAD FOSS

NEW YORK - Chevron Corp. said Tuesday its oil and natural gas production would rise by 600,000 barrels per day by 2010 - slightly below some analysts' expectations - and it announced plans for a possible major expansion of a Mississippi refinery.

Chevron CEO David O'Reilly also estimated that Gulf of Mexico production snags related to last summer's hurricanes would trim $500 million from the company's bottom line in 2006, compared with a reduction of $1.4 billion in 2005.

Chevron, the country's second-largest petroleum producer, told Wall Street analysts concerned about the company's growth that daily output would rise from 2.5 million barrels per day of oil equivalent in 2005 to 3.1 million barrels per day by 2010. By 2008, daily output would be about 2.9 million barrels per day.

"We as a company are doing a lot about supply," O'Reilly said in response to a reporter's question about the criticism the industry has faced from Congress over soaring gasoline prices and tight supplies.

However, part of Chevron's growth will come from production and reserves that it gained through its recent $18 billion acquisition of Unocal Corp.

Oppenheimer & Co. oil analyst Fadel Gheit said "the outlook is significantly better than the recent past," calling Chevron's production growth forecast of 3 percent per year through the end of the decade "very decent."

Gheit said there were still some questions about the timing of the growth.

Chevron executive vice president Mike Wirth said the company is "evaluating expanding" its Pascagoula, Miss., refinery to become "the second-largest in the United States."

The Pascagoula refinery, which was shut down for six weeks in the aftermath of Hurricane Katrina, currently processes an average 325,000 barrels of crude oil a day, making it the country's eighth largest, according to Energy Department statistics.

While Chevron previously announced plans to add 25,000 barrels per day of processing capacity at the Pascagoula plant, the company said Tuesday it was studying the possibility of adding a total of 200,000 barrels per day.

"The opportunity for us to invest in the refining side of our business are better than they have been in some time," Wirth said. At the same time, Wirth said the company has "been pretty careful not to make a mad dash to process more crude."

The largest U.S. refinery is Exxon Mobil Corp.'s 557,000-barrel-per day plant in Baytown, Texas. The second largest, at the moment, is Exxon's Baton Rouge plant, which refines 493,500 barrels per day.

Shares of San Ramon, Calif.-based Chevron fell 76 cents, or 1.4 percent, to $55.09 in afternoon trading on the New York Stock Exchange. Crude-oil prices fell 91 cents to $61.50 a barrel on the New York Mercantile Exchange.

Chevron forecast that its reserves of oil and gas would rise from roughly 12 billion barrels in 2005 to close to 14 billion barrels by 2008.

Chevron pinned its growth on large projects in the Caspian and West African and Asia-Pacific regions, with lower growth coming from the Asia-Pacific, North America and Latin America.

Chevron said it would spend between $15 billion and $16 billion a year in 2007 and 2008, with about a third of that amount disbursed on drilling. The company previously said it would increase its capital spending by 35 percent in 2006 to $14.8 billion, though about $1 billion of that amount comes from rising costs.

George Kirkland, the company's vice president for exploration and production, said the company was making "strong progress" on its drilling program and that Chevron was "specifically focused on reducing decline rates" of wells.

In January Chevron reported a profit of $14.1 billion for 2005, the company's best annual performance in its 126-year history.

Still, analysts do have concerns about the pace of the company's growth. Citigroup analyst Doug Leggate said in a report last week that the Chevron's reserve replacement has been "sub-par" for the past two years when growth from asset purchases is not included. Leggate said he was looking for daily production to grow to 3.3 million barrels per day by the end of 2009.

Source: Associated Press/AP Online

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