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Allentown Morning Call, PA: Chevron to spend billions to boost oil and gas output

By Andrew Leckey
Posted April 9, 2006
Q: A lot of my retirement money is in Chevron Corp. stock. I thought it would be doing even better because of high oil prices. How does it stack up against the competition?
A: With oil companies pumping out tremendous profits, the bigger they are, the greater their exploration, production and profit potential.
This No. 2 U.S. oil company, resulting from a merger with Texaco in 2001 and the recent $18 billion acquisition of Unocal Corp., certainly ranks as ''big oil.'' Its $14.1 billion profit last year was the second consecutive record year for the firm.
Yet some of its competitors are even ''bigger oil,'' a select club that includes this country's Exxon Mobil Corp. and overseas powerhouses BP PLC and Royal Dutch Shell PLC.
Chevron has had difficulty raising its oil output and coming up with new energy reserves to replace what it produced. It recently forecast that its 2006 output would be lower than the earlier projection it had made, due to damage from last summer's Gulf of Mexico hurricanes.
Shares of Chevron (CVX) are up 3 percent this year, following gains of 8 percent last year, 22 percent in 2004 and 30 percent in 2003. Their last annual decline was 26 percent in 2002.
Acknowledging its challenges, management recently pledged to Wall Street analysts that its oil and natural gas production will increase 24 percent, to 3.1 million barrels per day, by 2010. It will spend $15 billion to $16 billion annually through 2008 to accomplish this.
As part of its worldwide exploration, Chevron recently acquired oil leases for 180,000 acres in Alberta, Canada, where it believes 7.5 billion barrels of oil are located. It owns a 20 percent stake in exploration areas nearby.
At its current stock price, consensus analyst rating on Chevron is a ''buy,'' according to Thomson Financial. That consists of eight ''strong buys,'' four ''buys,'' nine ''holds'' and one ''underperform.''
The greatest oil company risk is low pricing due to oversupply. Other concerns are government scrutiny of industry profits, political unrest in production regions and environmental problems. Chevron had to clean up 31,000 gallons of fuel oil spilled into a waterway off New York Harbor this year.
Earnings are expected to rise 14 percent this year, versus 10 percent forecast for the major integrated oil and gas industry. Next year's projected 4 percent decline compares with the 3 percent decline expected industrywide. The firm's five-year annualized growth rate of 6 percent is in line with peers.
Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected]
Copyright © 2006, The Morning Call

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