Chevron Begins Steamflood

The Saudi Arabian subsidiary of Chevron Corporation (CVX - Analyst Report) started steam injection in its large-scale pilot steamflood project at Wafra field. This Eocene heavy-oil carbonate reservoir lies in the Partitioned Neutral Zone (PNZ) between Kuwait and Saudi Arabia. The $340 million pilot is the final test phase for steamflooding the reservoir. Upon completion, the project would be the world’s first commercial conventional steamflood in a carbonate reservoir.

Steamflood technology is an enhanced oil recovery method that involves injecting steam into heavy-oil reservoirs to heat the crude oil underground, reducing its viscosity and allowing its extraction through wells. Chevron has been using this method over the years to produce heavy oil from reservoirs at Kern River, California, and Duri Field, Indonesia. Duri is the biggest producing field that Chevron operates in the country.

Innovative technologies are a hallmark of Chevron, whose current oil and gas development project pipeline is among the best in the industry. The company has allotted a significant portion of its 2009 capital budget for technological aspects.

Our Buy recommendation on Chevron shares reflects the company’s endeavor of using the latest technologies. We also take into consideration its attractive inventory of development opportunities and recent exploration successes that give it an edge over its peers. We believe that Chevron is capable of generating above peer group average production and reserve growth in the next few years.