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Chevron Targets 20% Production Growth by End of 2017

Chevron Corp., the second-largest U.S. energy company by market value, plans to boost oil and natural-gas output by one-fifth through the end of 2017 with new wells from Australia to the Gulf of Mexico.

The increase to the equivalent of 3.3 million barrels of daily production will come from the $37 billion Gorgon liquefied natural gas complex in Australia as well as deep-water, heavy-oil and unconventional projects such as shale gas, Vice Chairman George Kirkland said at the company’s analyst conference today in New York.

“To continue this growth, we need to continue executing our major oil and natural-gas projects well,” John Watson, chairman and chief executive officer of the San Ramon, California-based company, said at the meeting. “Oil and gas exploration and production remains a very good business.”

After spending $3.2 billion last year to acquire Appalachian gas producer Atlas Energy Inc., Chevron is shifting its focus to finding crude and natural-gas liquids such as ethane that sell at a premium to gas, Watson said. Gas prices reached a 10-year low in New York today.

Chevron rose 1.1 percent to $111.19 at the close in New York, a record high. The shares have gained 4.5 percent this year.

Shale Exploration

Chevron isn’t shutting any North American gas wells to cope with a growing supply glut, Watson said. The fuel surplus and low prices probably will persist “for some time,” he said.

Most of the company’s costs for drilling the gas-rich Marcellus Shale in the U.S. Northeast are being borne by India’s Reliance Industries Ltd. under terms of a joint-venture signed with Atlas before Chevron’s acquisition, Kirkland said today.

Gas trapped in dense shale-rock formations is a “long-term” investment, given how far gas prices have fallen, he said. Wells already drilled in the Marcellus formation have exceeded expectations, Watson said.

Gas for April delivery fell as much as 2.9 percent in overnight trading to $2.204 per million British thermal units on the New York Mercantile Exchange, the lowest intraday since February 2002. The futures have declined 23 percent this year.

Chevron holds rights to explore for oil and natural gas in shale formations from China to Argentina to the U.S., according to today’s presentation. The company’s unconventional exploration leases and concessions cover 8 million acres, an area more than twice the size of Connecticut.

Overseas Shale Exploration

Chevron began drilling its first shale well in China earlier this year, and is exploring 940,000 acres of shale in the nation with China Petroleum & Chemical Corp., it said. The company’s second Polish shale well is under way and initial drilling in a shale formation in Romania will start later this year.

Chevron affirmed a January forecast for a slight rebound in production this year to the equivalent of 2.68 million barrels of crude after surging prices cut 2011 production by 3.3 percent. Production-sharing contracts in some nations reduce foreign operators’ share of output when global oil prices increase.

Every $1 increase in the price of oil reduces the company’s production volume by 1,000 barrels a day, Watson said.

Average Brent crude prices, a global benchmark, have risen 5.4 percent this year to $116.92 a barrel from $110.91 last year. Chevron produces three-quarters of its oil outside of the U.S.

Capital Spending

Chevron is planning to spend $32.7 billion this year on capital projects including oil platforms, gas-export plants and refinery equipment, a 12 percent increase from 2011. Partner companies and affiliates will cover $3 billion of this year’s spending plan.

Chevron added the equivalent of 1.67 billion barrels in reserves last year, enough to replace 171 percent of 2011 production. It was the company’s best reserves performance since 2005.

Exxon Mobil Corp., based in Irving, Texas, is the largest U.S. energy company by market value.

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