Chevron Corp is investing heavily in two huge Australian natural gas projects to ignite growth at the second-largest U.S. oil company as it carves costs out of its refining division in a tough market.
Chevron called the market for fuel products “challenging” and aims to cut refining costs by $700 million by 2012 from a 2008 base, with $500 million achieved. Under an overhaul unveiled last year, the company will have shed 2,800 employees by the end of 2011.
Mike Wirth, Chevron’s head of downstream, told Chevron’s yearly session with analysts that he expects margins to stay soft this year. Wirth has cut the company’s refining and marketing exposure from 143 countries in 2006 to 81, and he aims to reduce that number to below 50 by next year.
Chevron overall is spending 20 percent more this year, at $26 billion, including just $2.9 billion for downstream, up from 2010 but down from $3.5 billion in 2009.
As for oil and gas extraction, Chevron sees average 2011 oil-equivalent production of 2.79 million barrels per day, or 1 percent growth. But annual growth is set to pick up to between 4 percent and 5 percent after 2014, once the Australian gas starts flowing.
The $37 billion Gorgon liquefied natural gas (LNG) project, which the company is building with Exxon Mobil Corp and Royal Dutch Shell Plc, is on target to produce the oil-equivalent of 450,000 bpd starting in 2014.
The final investment decision at Wheatstone, a project 60 miles (100 km) to the south of Gorgon on the west coast of Australia that will add another 260,000 bpd, will be made in the second half of this year, ahead of a 2016 start-up.
“Once online, these projects will generate significant cash flow, and soften our decline rate for decades,” Chief Executive John Watson said at the meeting in New York, adding that its gas contracts with Asian buyers were linked to oil prices.
The focus on natural gas contrasts with larger rival Exxon, which at its analyst meeting last week reminded investors how much oil it will still be producing despite its acquisition of gas-focused XTO last year.
Of Chevron’s $26 billion spending budget for 2011, 40 percent will go toward natural gas, and nearly half of that share will go on gas that is “near oil parity,” according to Chief Financial Officer Pat Yarrington.
Half of Chevron’s natural gas resources are in the Asia-Pacific region, where demand will grow far faster than elsewhere over the next quarter of a decade, Watson said.
Shares of the San Ramon, California-based company were unchanged at $99.93 in late-morning trading on the New York Stock Exchange.
