Chevron focuses on North American production

Over the past decade, Chevron Corp. has focused its production growth efforts mainly on its international operations, but the firm now must turn its attention to North America if it is to meet its goal of worldwide production growth averaging 4.0-4.5%/year, George Kirkland, president of Chevron's North American upstream operations, told an oil industry gathering in Houston Wednesday.


Karen Broyles
OGJ Online

Over the past decade, Chevron Corp. has focused its production growth efforts mainly on its international operations, but the firm now must turn its attention to North America if it is to meet its goal of worldwide production growth averaging 4.0-4.5%/year.

George Kirkland, president of Chevron's North American upstream operations, told guests Wednesday at a joint luncheon for the Houston chapters of the Independent Petroleum Association of America and the Texas Independent Producers Organization that Chevron intends to grow its overseas production by 8-10%/year. But to meet its overall growth goal, Kirkland says Chevron will have to achieve decline rates of less than 2%/year in its North American operations.

Production from Chevron's North American properties totals 660,000 b/d, or 40% of its overall production.

Chevron has already pared down the number of drilling properties it owns in North America to 300 from the 4,000 it once held, leaving little room for it to divest more assets. It has undertaken novel strategies to maintain production and lower costs, such as a 1999 agreement with The Chandler Co.

Growth through Shenandoah
Chevron reached an agreement with The Chandler Co., Vernal, Utah, in which Chevron transferred its oil and gas assets in Utah's Uinta basin to Shenandoah Energy Inc., a company created by Chandler (OGJ, Sept. 13, 1999, p. 46). Chevron received an equity ownership interest in Shenandoah and an undisclosed amount of cash in exchange for its assets. Shenandoah also acquired all of Chandler's stock.

Assets transferred in that deal included properties in the Red Wash, Wonsits Valley, Gypsum Hills, and Brennan Bottom unit areas. Total Chevron production in the region averaged 2,280 b/d of oil and 5.9 MMcfd of gas.

Chevron closed that deal Dec. 30, 1999. On Jan. 1 of this year, Shenandoah began its drilling program, which included Chevron's assets in the Uinta basin and assets in Colorado's Raton and Piceance basins. The results of the program's first 6 months have been "very positive," says Kirkland, adding that no dry holes have been drilled yet.

Kirkland says the agreement with Shenandoah allows production and reserves to be maintained in Uinta, as Shenandoah has been able to invest at a higher rate to develop the properties. "We couldn't create the same value if we just sold the properties," says Kirkland.

So far, Shenandoah has been able to reduce general and administrative expenses by 71%, and has reduced drilling costs and time by 40% and 38%, respectively, says Mitchell L. Solich, chairman, president, and CEO of Shenandoah. The company plans to drill 102 wells in its $52 million drilling program for 2000.

Solich says the structure of the deal between Shenandoah and Chevron "allows the companies to create value for Shenandoah and Chevron shareholders." Other advantages include a drilling inventory of over 1,000 sites and two potential acquisitions within Shenandoah's crosshairs.

That drilling inventory includes 869 Wasatch natural gas wells in Utah, and in Colorado, 51 crude oil wells in the Green River basin and 82 coalbed methane wells in the Raton basin. Those assets also include a 25,000 MMcfd gas processing plant in Utah. Plans call for increasing that capacity to 100 MMcfd and opening the plant to gas from other companies.

Shenandoah also has nearly completed a divestiture of noncore assets, including fractional interests in properties in six states. That should also ease the company's administrative burden, says Solich.

Solich says 21 producer wells have been drilled in the Wasatch and Green River areas, where projected rates of initial production are on target.

Assets inspire confidence
Kirkland says Chevron is confident it can meet its production growth targets. Its core assets on the Gulf of Mexico shelf, California's San Joaquin Valley, and other areas look promising.

The company also has been able to grow production in certain core areas while its operating costs the last 10 years have fallen, says Kirkland.

Chevron plans to drill nine exploratory wells in the deepwater Gulf of Mexico; drilling there is limited only by access to drilling permits from regulatory agencies and existing infrastructure, he said.

Meanwhile, the company anticipates more production coming on line next year at the Athabasca Oil Sands Project in Alberta. Chevron subsidiary Chevron Canada Resources Ltd., Western Oil Sands Inc., and Shell Canada Ltd. are partners in the Athabasca venture.

The company and its partners also recently received approval from the Canadian province of Newfoundland to raise production at Hibernia field, says Kirkland.

Chevron could step up drilling in the Rocky Mountain region, too, thanks to the presence of more pipeline infrastructure there, but Kirkland says personnel, capital, and ability to get drilling permits on federal lands are limiting activity in the region.

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