Well known to most investors, Chevron (NYSE: CVX, $98.63) is the second-largest U.S.-based integrated oil company. The firm derived just under 80% of its net income in 2007 from the production of oil and natural gas. The rest of its profits came from refining and marketing refined products.

Catalysts:  Among the U.S. integrated oil companies, Chevron has the strongest production growth potential thanks to the planned start-up of several new projects in the coming three years.

For example, CVX plans to start production from its Agbami deepwater oil production project in Nigeria by the end of 2008. CVX has a 68% stake in the field, and its share of production could reach 150,000 to 200,000 barrels of oil per day from the field over the next two years.

CVX also has plans to begin production from two large deepwater projects in the Gulf of Mexico: Tahiti and Blind Faith. The firm's share of production will likely be more than 100,000 barrels per day from these fields combined.

And these are just three of Chevron's most advanced projects -- the company has several more projects planned in the Gulf and internationally. All told, management believes that the firm can produce around 3 million barrels of oil equivalent per day in 2010, up from about 2.6 million today.

In addition, CVX has significant exploration upside. The company plans further exploration work on two major Gulf of Mexico deepwater fields -- St. Malo and Jack -- for 2008. If those wells pan out, the company would likely boost reserve and production estimates for these fields.

Finally, my staff and I also like Chevron's burgeoning liquefied natural gas business. Natural gas is comprised primarily of methane, a colorless hydrocarbon gas. Or at least it's a gas at room temperature: When cooled to -160 degrees Celsius (-260 degrees Fahrenheit), natural gas liquefies. LNG can be loaded onto tanker ships and shipped anywhere in the world, just like crude.

The U.S., EU, and Asia are projected to become far more dependant on LNG imports in coming years. CVX has promising gas developments in markets like Nigeria and Australia that it plans to produce as LNG. Thus, the firm looks like a promising play on growth in demand for LNG.

Competitive Advantages:  Chevron has plenty of competition in the oil and gas business. Nonetheless, due to its size and financial strength, CVX is one of only a handful of firms with the scale to pursue multi-billion dollar deepwater and international oil and gas development projects. And it's not just size; CVX has completed several large-scale projects and has significant experience and know-how when it comes to completing such deals.

In addition, CVX has a long history of operating in key oil and gas-producing regions of the world. The company has existing relationships with many foreign governments and NOCs that give it a leg up on winning a stake in major new projects.

Finally, on the refining front, no new refining facilities have been built in the U.S. in more than 30 years. Getting planning permission for a new refinery would be difficult because of local opposition and environmental issues. Therefore, companies with an attractive base of refining capacity are unlikely to see competition from new facilities.

CVX owns some attractive refining assets. Specifically, refining margins on the West Coast tend to be higher than in the east due to a shortage of refining capacity and the lack of European gasoline imports. CVX owns a large base of refineries in the region and can therefore take advantage of these fat margins.

Valuation and Outlook: Shares of Chevron have performed well in recent years, but continue to trade at a discount to many of its integrated oil peers. The stock trades at about 7.9 times next year's earnings estimates, compared with 8.7 for ExxonMobil (NYSE: XOM).

And CVX's long-term projected growth rate stands at about +12.7% -- with a price-to-earnings-growth rate of just 0.62.

Chevron should see its production pick up over the next few quarters as it opens new projects in the Gulf of Mexico, North Africa and Asia. In addition, CVX has several promising exploration projects underway; the company is likely to announce updated reserve and development information on these prospective plays, another potential upside catalyst.

CVX looks like a good value at current levels. I consider the stock a "Buy" under $100 per share.

-- Paul Tracy
Editor
StreetAuthority Market Advisor

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