Chevron's fracking plans for Romania draw heat
But the company still hopes to use its drilling technology in international markets where gas prices are higher.
Chevron (CVX) has been aggressively pursuing shale exploration prospects in Europe, targeting countries like Poland and Romania. In Romania, the company has obtained concessions to explore more than 2.2 million acres for shale gas. In neighboring Bulgaria, where Chevron also held exploration permits, authorities banned the process of fracking last January.
Unlike Exxon Mobil (XOM), which has major shale gas operations in the U.S., Chevron seems to be more determined to use its technology in international markets where gas prices are much higher than in North America.
Environmentalists across the U.S. and Europe have raised concerns regarding the environmental impact of fracking. The process has been banned in France and Bulgaria and companies risk E.U.-wide regulations. However, Poland has been against such regulation. The country sits on some of the largest shale reserves in Europe and it hopes to develop them to reduce its dependence on Russian gas imports.
Chevron has said that it would take the company around three to five years before it can decide on proceeding with shale exploration outside of the U.S. Many technical and logistical challenges have to be handled before natural gas can be extracted on a commercial scale in Europe. Differences in geology and higher population density in Europe are seen as hindrances to the adoption of shale exploration.
Romanian President Traian Basescu has supported the exploration of the country's reserves, but with the new demonstration against fracking in March, the government may be forced to reconsider its plans, as in the case of Bulgaria.
We have a $109 price estimate for Chevron, which is at 5% premium to its current market price. Our gas production volume and price estimates for Chevron assume that the company will be able to begin production of shale gas in international markets such as Europe and Latin America over the next few years. Chevron will also be bringing up its massive liquefied natural gas projects in Australia in this period, targeting Asian markets.
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