Chevron (NYSE: CVX) Shale Gas Investments

Brian Hicks

Written By Brian Hicks

Posted September 4, 2013

Big Oil is certainly determined to stick with natural gas investments, but it is beginning to do so in a smarter way.

Big companies like Chevron (NYSE: CVX) have received some flak for focusing too much on natural gas and not enough on domestic shale oil, but the energy giant is investing in both shale gas and oil abroad.

fracking rigThere is excitement among smaller energy companies that have focused on domestic shale oil, but Chevron is using its international leverage to forge deals in what could be potential hotspots for shale energy production. Chevron has made agreements with countries including Romania, Lithuania, and Argentina for shale gas and oil.

There is a major risk, since these counties have been on shaky ground when it comes to producing commercial hydrocarbon reserves. But Latin America and Eastern Europe have vast potential.

Eastern Europe

I wrote in previous articles about Russian energy giant Gazprom’s (MM: GAZP) stranglehold on the European natural gas market. President Vladimir Putin is considering lifting its monopoly favoritism on Gazprom, but this would only liberalize the Russian energy economy. Even the sparsely populated Mongolia is trying to develop its own resources to get away from expensive imports from Russian company Rosneft (MM: ROSN).

The yearning is there for Eastern European countries like Lithuania – a country that, according to Reuters, pays the highest prices for wholesale natural gas in the European Union – to break away from higher-priced Russian imports. The issue is so problematic that the European Commission is beginning an investigation into the matter.

But Eastern Europe is a bit of a grey area when it comes to shale reserves. The reserves are there, but they have shown little commercial potential.

Still, many foreign energy companies are still invested in Eastern Europe’s dream of freeing itself from Russia.

That is why Chevron is on the right track in obtaining a license for shale gas exploration in the western region of Lithuania from the nation’s government. According to the terms of the agreement, Chevron is required to invest at least $30 million in the region in return for a seven-year permit. Formalization of the deal is expected to commence later in September.

There have been hits and misses in the region, with the Bulgarian government canceling Chevron’s exploration endeavors after widespread protests, but strategically speaking, Chevron is in a good position in Eastern Europe.

There were additional setbacks when a local council in Ukraine rejected the government’s desire to share shale gas endeavors with the American company, but Chevron already has a presence in the Ukraine.

Poland is another nation with a strong desire for Russian gas independence. So far, companies like Talisman Energy (NYSE: TLM) and Exxon Mobil (NYSE: XOM) have pulled out after finding little in the way of commercially attainable hydrocarbon reserves, but there have been successful results in northern Poland recently. Poland has handed out over 100 energy permits to companies including Chevron.

Romania recently lifted its ban on fracking, and it is in the same boast as its fellow Eastern European neighbors in wanting to break free of Russia. The Romanian government granted approval to Chevron for exploration in the Baltic territory and along the eastern region.

There are no guarantees that Eastern Europe will usher in commercial production reserves, but it is still a worthwhile investment.

And Chevron made a smart move by investing in Eastern Europe early. By placing a stake in more of these countries, the company stands a higher chance of attaining successful results and has a real chance of breaking Russia’s monopoly hold.

There is also wiggle room for Chevron to supply Eastern Europe with natural gas from other energy sources around the world.


Another strategic move on the part of Chevron is the forging of a $1.24 billion deal with Argentina’s state-run entity YPF (NYSE: YPF) for development of the Vaca Muerta – an area that holds vast potential in the way of oil and gas reserves. Chevron is hopeful that it can enter the second phase of development, drilling up to 1500 wells on a faster basis.

The first-phase goal is to drill 150 wells, with 11 million barrels expected in the first year.

Afterwards, Chevron has the option of continuing, but it would have to invest up to $16 billion until 2048 in an attempt to reach over 1500 barrels.

Like Eastern Europe, Argentina also has its problems. President Cristina Fernandez De Kirchner’s administration has been trying to increase sputtering domestic production. But Argentina is one step ahead of Europe, since that country already has an established energy presence.

Chevron could be just the company the Argentine government needs to usher in a greater amount of production.

Argentina is South America’s largest natural gas provider and the fourth largest in the world for shale oil, holding 27 billion barrels. But tight regulations and a fallout with Spanish company Repsol (OTC: REPYY) over nationalization of YPF has turned away many foreign investors.

According to EIA estimates, Argentina holds 12 trillion cubic feet of natural gas and 802 trillion cubic feet of unproved but technically recoverable reserves. With unproved reserves, Argentina is second only to China.

Chevron is certainly in the right areas when it comes to foreign deals, but there are risks with each deal.

Is Chevron a Good Investment?

Chevron seems to be focusing on long-term investment as opposed to jumping on the domestic shale oil bandwagon.

But internationally, Chevron definitely has its finger on the pulse of international shale oil and gas.

And the company does have other options, since many other countries in the world are trying to develop their own shale resources. Uzbekistan, for example, is trying to develop shale oil reserves to free itself of Kazakhstan imports.

But I believe Chevron can be successful in the long-run as long as it continues to maintain a healthy balance of shale oil and natural gas assets around the world.

You’ll have to be the patient type if you want to invest in Chevron, since you’re not going to see immediate results from these deals. But if you stick with the company, Chevron’s international deals should pay off over time.


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