Chevron, the No. 2 U.S. oil company, said Tuesday on Tuesday said it expects its oil and gas reserves to grow about 5 percent over the next three years, but the growth won't quite offset the 7 percent drop the second-largest U.S. oil company reported in 2007.
The company said it expects its proved oil and gas reserves to be around 11.3 billion barrels of oil equivalent (boe) at the end of 2010, which is just slightly higher than what the company held before its 2005 purchase of Unocal.
That figure compares with year-end reserves of 10.78 billion boe for 2007, which in turn was down sharply from 11.62 billion boe at the end of 2006.
Like most large oil firms, Chevron has struggled to replace its production in recent years, due to project delays, restricted access to new fields, and contracts that give a larger share of reserves to host countries at higher oil prices.
Chief Executive Dave O'Reilly, speaking at the company's annual meeting with analysts in New York, said Chevron's dropping reserves can be traced back to the company's 2001 acquisition of Texaco.
"We had a dearth of projects coming on line -- both Chevron and Texaco -- as we were combining the companies," O'Reilly said.
"I think you're seeing a transition in the portfolio from that period. But it's a good thing, because we reevaluated the projects ... and we have a very, very strong queue," he said.
O'Reilly said he was optimistic about the company's prospects for reserves growth beyond 2010.
With the exception of 2005, which was boosted by the Unocal acquisition, Chevron's reserves have dropped every year since 2003.
The company sees near-term growth, helped by projects in Kazakhstan, Nigeria, Australia, Brazil, China, the United States and Angola.
Production is expected to increase to 2.92 million boe per day in 2010 from 2007 production of 2.62 million boe per day, helped by 11 projects it plans to start up over the next two years.
Still, Chevron is still running into some of the same problems that have hit the entire industry.
Since last year's analyst meeting, the company's expected start-up date for at least five projects has been pushed back, even though Chevron has reported progress at some of them.
Costs have also trended upward. For instance, the company's Tahiti project in the Gulf of Mexico, which has been delayed by faulty shackles, is now expected to run the company $4.7 billion, up from an estimated $3.5 billion last year.
Chevron's Executive Vice President Mike Wirth also said the company plans to make divestments in its downstream business, with a focus on its marketing and lubricants businesses.
The company plans to divest 1,000 retail sites as part of its plan to exit marketing and lubricants operations in 70 countries. Wirth said the restructuring of those businesses could save the company $700 million annually.
Chevron expects to sanction four downstream projects in 2008, all expected to begin production in 2010.
Besides an already announced pre-commercial plant to test heavy oil upgrading technology, the company said it expects these projects to be a crude flexibility project at its Richmond, California, refinery and yield improvement projects in El Segundo, California, and in South Korea.
The company said it will continue its plans to shrink its marketing footprint.