Chevron Corp. has capex opportunities in the Marcellus, Utica, Monterey

“This is as good as it gets in the deepwater Gulf of Mexico,” says Paul Sankey, Deutsche Bank integrated-oil equity analyst. Sankey and the investment-banking group’s research team visited with Chevron Corp. management Wednesday about the outlook for future meaningful news from the super-major.

“The most dramatic statement from our lunch with Chevron's consistently impressive board member, senior vice president and head of upstream George Kirkland in Boston…was that current activity levels in the deepwater Gulf of Mexico represent ‘the new normal,’” Sankey says.

President Obama placed a moratorium on drilling under existing permits in the Gulf after the April 2010 Macondo well blowout. The moratorium was lifted later; however, the new regulators of Gulf drilling—the BSEE and BOEM, formerly known as the BOERME that was created and replaced the MMS during the moratorium—has not green-lighted much new drilling under existing permits and new-permit sales were suspended.

“For smaller players—even $9-billion (-market-cap) Murphy Oil Corp. is talking about an exit—this could be the end of the road on red tape,” Sankey says.

If robust drilling is not revived and the only wildcatters left in the billion-barrel Gulf region are mega-cap E&Ps, it is “another nail in non-OPEC (production’s) coffin if this is really peak activity in the GOM, with Chevron and other mega-caps as the only players. Those companies will see fewer competitors, more GOM access opportunities, lower service costs and overall oil prices higher on weak non-OPEC supply,” Sankey says.

He adds, “Good for them; that is, we believe, until the government—of the time, probably mid-next administration—wakes up to low activity, higher unemployment and less U.S. oil supply.”

He adds that Chevron management “stresses that the current regulations are far more onerous—hardly surprising post-Macondo.”

The beneficiary of stranded capex that super-majors planned for the deepwater Gulf includes onshore Lower 48 unconventional-resource plays. Spending on this type of oil and gas development that is still within the U.S. “might mitigate any policy response in Washington.”

Murphy Oil, which he says is considering a Gulf exit, has already stated that it plans to increase spending in the Eagle Ford shale-liquids and -gas play in South Texas.

Chevron plans to increase its capex spending on its Marcellus shale-gas and -liquids assets, which it bought from Atlas Energy Inc. earlier this year. It also holds more than 600,000 acres that are prospective for Utica oil-shale pay in Ohio and it owns a large leasehold in southern California that is prospective for Monterey shale-oil pay.

As for Chevron acquisitions, Sankey says that, in the Wednesday meeting, “denials were not as strong as bulls might hope. Don’t count out more (unconventional-) resource deals here.”

Sankey says cash-rich Chevron is underweight U.S. natural gas and U.S. unconventional resources.

“Questions will persist over its appetite for M&A to boost near-term growth and develop a portfolio with shorter-term, more-flexible spending that the unconventional (play category) offers (compared with long-range Gulf and other mega-projects).”

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor,, Oil and Gas Investor This Week, A&D Watch,, Contact Nissa at