Energy is vital to modern life, and oil and natural gas remain key sources of that energy -- which is why Chevron (CVX 0.53%) is continuing to look for ways to expand its production of these carbon fuels. And that push remains in place even as the company expects demand for cleaner alternatives to expand, thanks to a growing global population. Right now, Chevron sees a big opportunity to invest in production growth in the United States.

Two problems to solve

From a company-specific standpoint, Chevron has to deal with depletion. The oil and natural gas that can be extracted from any given well is limited and every barrel pulled from the ground is one less barrel that can be extracted in the future. Thus, companies like Chevron are always on the lookout for new investment opportunities to replace the oil that's been drilled.

A person in protective gear with pipes and a drilling rig in the background.

Image source: Getty Images.

The world's population also continues to expand. And that expansion is largely from emerging market growth, where economies are less developed. That generally means they rely more on carbon fuels to satisfy their growing energy needs. That demand is what's going to keep demand for all energy sources elevated for years to come. And it necessitates ongoing investment by energy companies like Chevron.

The bigger question is where to find that energy. Right now Chevron sees a huge opportunity in the onshore U.S. market. 

Quick and friendly

Two of the key differences between drilling a shale well and an offshore one are time and investment. An offshore well is an expensive project that can take years to get off the ground, from exploration to drilling. It is just a complex thing to do, given the need to drill thousands of feet below the surface of the sea.

By contrast, drilling onshore is fairly quick and easy, allowing production to be ramped up at a rapid clip without a huge cost. Moreover, if the need arises, spending can be easily dialed back by slowing the pace of new well construction. Deep sea oil wells don't really have that optionality. 

On top of that, Chevron is trying to find oil in regions where it is relatively environmentally friendly to produce. That was one of the big reasons for its recent agreement to buy onshore U.S. driller PDC Energy, which will help the company reduce its overall emissions footprint. Chevron estimates that PDC Energy's carbon intensity is less than half that of Chevron's internal target for 2028.

So investing in onshore U.S. drilling can materially improve Chevron's environmental bonafides. 

Both of these reasons play a big role in Chevron's expectations for material growth in its onshore U.S. drilling activity. In fact, by 2027, the Permian basin is expected to contribute more to the company's production growth than other production sources -- by a wide margin. According to a recent company presentation, the Permian will be roughly twice as important as the next closest "key asset."

That isn't to suggest that Chevron has stopped looking for oil elsewhere. Offshore drilling will continue, noting that there are usually longer well lives associated with this type of investment than with an individual shale well. So there's a reason to put money to work across a broad spectrum of options.

But that doesn't change the fact that investors should be paying extra attention to Chevron's onshore U.S. drilling activity for at least the next several years. The company's production growth forecasts are highly dependent on the success of these assets.

Plenty of room to run

There are a lot of different projections about the future for oil and natural gas. However, in most, these key energy sources remain important to the world decades into the future. Chevron is working to serve that demand in the most shareholder-friendly way it can. Right now that's by investing in onshore U.S. drilling, given the speed at which wells can be built and the environmental benefits of increasing this type of investment.

If you own Chevron or are looking at it, understand that big money is going toward shale as the company looks to support its 3.9% dividend yield and the company's efforts to continue to grow the dividend over time.