Oil giant Chevron (NYSE:CVX) is a profit powerhouse. On Friday, the company reported third-quarter earnings that more than doubled over the same quarter last year, as the recent rise in petroleum prices compensated for a decline in production.
The second-largest U.S. oil company after Exxon Mobil (NYSE:XOM) said it earned a whopping $7.83 billion last quarter, or $3.92 per share. That easily bested the $3.77 billion, or $1.87 per share, it earned in the prior Q3. Interestingly, it was a 74% surge in Chevron exploration and production profits that led the way higher, even as oil and natural gas production declined 5%.
Chevron never has been content with resting on its laurels, and that’s one reason why I don’t think it’s going to be content with production declines. In fact, earlier this month Chevron announced an innovative test designed to boost production, and it involves (of all things) solar power.
The demonstration project to test the viability of using solar energy to produce oil involves more than 7,600 mirrors to focus the sun’s energy onto a solar boiler. The steam produced then is injected into oil reservoirs to increase production. This method could be particularly effective in the company’s Coalinga Field, located in northern California, which has been pumping out heavy crude oil since the 1890s.
Because the heavy crude produced at Coalinga doesn’t flow readily, it is more difficult to extract than lighter grades of crude, and therefore more expensive to unearth. By heating up the crude with steam that’s been heated by low-cost solar power, Chevron hopes to increase production at a reduced cost.
Helping Chevron achieve this is the soon-to-be-public BrightSource Energy, a VC-funded concentrated solar power developer. The company’s first completed commercial project produces steam for enhanced oil recovery, or EOR, at Chevron’s Coalinga Field. According to industry reports, traditional oil recovery can extract just 10% to 30% of the potential oil from any given reservoir. However, with EOR methods, that number should be substantially increased — and at a very attractive cost.
According to industry analysts at BCC Research, the global market for EOR technologies is expected to grow from $4.7 billion in 2009 to $16.3 billion by 2014. That’s a big jump, and it speaks to the big demand for increased oil production by companies such as Chevron, Exxon Mobil, BP plc (NYSE:BP) and ConocoPhillips (NYSE:COP).
While a boost in Chevron’s production from EOR undoubtedly will help its bottom line, success of the project really will be a boom to BrightSource Energy. According to the company’s S-1 form, which it filed in anticipation of its IPO, most of the company’s initial revenue has come from the Coalinga project deal with Chevron.
If both companies are successful in harnessing the power of the sun to get more oil, then it could mean more sunny days ahead for all parties involved — including shareholders.
As of this writing, Jim Woods did not hold a position in any of the aforementioned stocks.