Chevron to Explore Europe

U.S. energy behemoth Chevron Corporation (CVX - Analyst Report) believes that there is a significant accumulation of extractable shale gas in Eastern Europe.

Lithuania, one of the Eastern Europe nations, has local reserves of nearly 60 billion cubic meters of natural gas, as per the country’s geological authority. This is sufficient for the coming 20 years at the present utilization rate. Extraction of shale gas – found beneath layers of porous rock formations called shale – is quite difficult. As a result, Chevron purchased 50% interest in Lithuanian oil and gas exploration company, LL Investicijos last year to tap the same.

Currently, Lithuania is fully dependent on Russia’s oil giant Gazprom for natural gas supply, and in order to gain energy independence, the country is trying to extend its resources. We see Chevron’s stake purchase in Lithuania as a clear sign of its growing interest in European unconventional natural gas. Chevron has already purchased about 4 million of exploration acreage in Poland and Romania.

Chevron is also looking to win exploration license in the country that will help it to increase its worldwide sales capacity for natural gas.

It is expected that Chevron will increase its stake in Lithuania in the coming years.

San Ramon, California-based Chevron displays a strong portfolio of global projects, targeting volume growth of around 20% by 2017. Additionally, Chevron possesses one of the healthiest balance sheets among its integrated peers, which include oil gaints like BP plc (BP - Analyst Report), ExxonMobil Corp. (XOM - Analyst Report) and Royal Dutch Shell plc (RDS.A - Analyst Report). The company’s balance sheet strength helps it to capitalize on investment opportunities with the option to make strategic acquisitions.

Management made significant progress in re-balancing Chevron’s asset portfolio by divesting non-core and high-cost assets. The company’s decision to sell its marketing businesses in Kenya, Nigeria, Uganda, Western Africa and Brazil is part of that strategy. In particular, Chevron plans to exit the low profit generating business and concentrate on the discovery of oil and gas worldwide.

However, Chevron’s production growth profile depends on the timely development of upstream projects, almost all of which have inherent risk factors. Time and cost overruns on these programs may lead to lower returns going forward.

Chevron currently carries Zacks Rank #3 (Hold).