By ISABEL ORDONEZ and CHRISTIAN BERTHELSEN
Chevron said Tuesday its oil and gas production will inch up this year but it expects output to jump 20% in five years as massive liquefied natural gas (LNG) projects in Australia commence operations.
During the company's annual meeting with analysts in New York, Chevron executives said production will rise 0.26% to 2.68 million bpd of oil equivalent this year, and to 3.3 million bpd of oil equivalent by the end of 2017.
Those estimates are up from 2.67 million bpd of oil equivalent it produced in 2011. The 2017 projection is based on an oil price average of $79/bbl, the company said.
Chevron, based in San Ramon, Calif. and the second largest US oil company by market value after ExxonMobil, said annual production could vary depending on oil prices.
The company has in place several share production sharing contracts with foreign governments that give more production to national oil companies - and less to international oil companies - when oil prices rise.
Light, sweet crude oil for April delivery on the New York Mercantile Exchange was 30 cents lower, at $106.04/bbl, in a range of $105.85 to $107.13/bbl.
Chevron's future growth will be driven by a handful of large oil and gas projects worldwide. The liquefied-natural-gas Gorgon project in Australia is on track to start production in 2014 and still expected to cost $37 billion, the company said.
Construction of development wells is expected to start this year.
Chevron's $29 billion Wheatstone LNG project, also in Australia, is scheduled to start production in 2016.
The first shipment of Chevron's LNG project in Angola is expected in the second quarter and the project is expected to reach peak production of 175,000 bpd of oil equivalent.
Asked about the possibility that company could use some of its abundant cash - $15 billion - to increase dividends or make acquisitions, Chevron CEO John Watson said the company's priority is to fund a string of capital projects.
The executive, however, hinted things could change once these projects advance.
"I don't want to pile up cash on the balance sheet indefinitely," Watson said. "As we get closer to those projects on line, our need to carry cash on our balance sheet will diminish."
Chevron also answered questions about its outlook for Brazil, where it is facing legal actions from authorities related to an offshore oil spill in November.
"It remains to be seen what the future holds for our business there," Watson said. "We need to be treated fairly and we need to be treated consistently. The rhetoric has been very high."
Chevron, which has already been fined more than $50 million for the spill, said it believes its employees reacted timely and responsible to the incident.
Chevron also said that outside the US, it is trying to develop shale gas in countries where there is a market for natural gas, such as Poland, Argentina and China.
It said it has begun drilling for unconventional oil and gas resources in China as part of a joint study with China Petrochemical Corp., known as Sinopec Group, which covers 940,000 acres.
In Argentina, the company plans to start exploratory drilling this year in the 110,000 acres it has in El Trapial, while it plans to start its second well in Poland this quarter. The company plans to begin exploration drilling in Romania this year.
Company executives, however, warned global shale gas exploration is nascent and still uncertain.
Unlike the US, where companies have already drilled many wells allowing them to understand shale formations, international drilling is beginning and the performance of the formation is basically unknown, executives said.
Speaking to reporters on the sidelines of the meeting, Watson said low natural gas prices "have surprised everyone" and that he believes the supply glut caused by the development of shale gas in the US will continue "for some time."
Natural gas prices fell to a fresh decade-low last week below $2.40 per British thermal unit.
Watson attributed high oil prices to "financial money moving into commodities", international events and a "tightness" in the global supply-demand equilibrium.
The company confirmed that its capital expenditure budget for this year is expected to be $32.7 billion.
Dow Jones Newswires