In the near term, the heart of Chevron Corp.’s effort is to commercialize its large, discovered conventional resource base through liquefied natural gas (LNG), notably in Australia. In the longer term, the company expects continued growth from major capital project startups between 2012 and 2014 along with projects awaiting final investment decisions (FIDs).

Chevron, in a presentation on March 13 to analysts, pointed out that its emphasis was on oil projects. “In building our portfolio, we’ve intentionally favored investment in oil projects and gas projects with oil-based pricing where it is possible,” said John Watson, the company’s chairman and chief executive officer. “We’ve done this because the supply/demand balance is much tighter for oil than it is for gas.

“We also like gas. And, the world has a lot of gas thanks to discovered but undeveloped conventional resources that are far from markets and shale gas in North America and potentially elsewhere,” he emphasized.

“The heart of our gas strategy is to commercialize our large, discovered, conventional resource base through LNG, notably in Australia,” he continued. “We’ve contracted to move most of our LNG to markets with strong demand and long-term, oil-linked pricing. We expect this regional price structure to be sustained.”

George Kirkland, Chevron’s vice chairman and executive vice president for upstream and gas, noted, “We are focused on building legacy positions with major investments in LNG, deepwater Gulf of Mexico and shale opportunities around the world.”

The company’s upstream capital and exploration (C&E) budget is $28.5 billion in 2012. “For this year, 10% of the upstream budget is targeted for exploration. About 60% is directed to major capital projects. Our LNG spend is about $9 billion, primarily focused on Gorgon and Wheatstone (in Australia),” Kirkland explained.

“We expect 2012 and 2013 to be peak years for our global LNG investment,” he added. “The remaining 30% of our program is for base business.”

Chevron added 1.7 billion barrels to its reserves in 2011, a replacement ratio of 171%. More than 50% of the additions were due to Wheatstone, Marcellus acquisitions and the Jack/St. Malo project in the Gulf of Mexico.

The company added 7.0 million acres to its leaseholdings in 2011 with 40% of the total acreage additions in shale. “In 2012, we plan to invest about $3 billion in exploration and drill 90 exploration and appraisal wells worldwide. This is a significant increase in spending and activity level from 2010.

“We plan to drill about 15 impact wells this year, including four in Australia and two in the deepwater Gulf of Mexico. In our test areas, we plan to drill offshore Liberia, deepwater China, the east coast of Canada and the ultradeep gas play on the Gulf of Mexico shelf,” he stated.

About 84% of its exploration budget will go to conventional wells while the remaining 16% will be for unconventional plays.

On the unconventional side, “we have a busy year planned for 2012. We are currently drilling shale wells in the U.S., Canada and Poland, and plan to spud wells in Argentina, China and Romania later this year,” he noted.

Over 85% of Chevron’s North American investment is directed at oil projects. “In North America, we have a strong set of unconventional opportunities,” he continued.

In looking at the company’s project inventory, Kirkland stated that Chevron has 100 projects in its portfolio in which the company’s net investment exceeds $250 million. Over the next six years, the spending by project class is expected to be 37% in LNG, 28% in deepwater, 14% conventional, 11% sour oil, 5% heavy oil and 2% unconventional.

“We have a good pipeline of projects in evaluation, design, construction and ramp up,” he emphasized.

In addition to projects currently underway, there are upcoming FIDs over the next three years for 12 projects where Chevron’s net share of investment is over $1 billion. Expansions of its Tengiz and Gorgon projects are expected to reach FID.

All of these efforts are designed to fuel production that will drive Chevron’s growth. The company’s long-term production target is to reach 3.3 million barrels per day (b/d) by 2017 from its current 2.67 million b/d.

Chevron is focusing on five key asset classes for this growth -- deepwater, heavy oil, unconventional, sour oil and gas, and LNG, he concluded.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.