Kazakh Energy Minister Says Chevron-led Consortium to Invest Up To $37 Billion in Oil Field -- 2nd Update
May 25 2016 - 10:58AM
Dow Jones News
By Simon Clark in Astana and Selina Williams in London
ASTANA, Kazakhstan-- Chevron Corp. and its partners are set to
invest up to $37 billion to increase output at a Kazakhstan oil
field that is among the world's most expensive, the country's
energy minister said Wednesday, a rare big spending commitment
during a prolonged crude slump.
The investment in the oil field known as Tengiz would begin in
2017 and come on top of about $37 billion already spent by Chevron,
the operator, and its partners: state-owned energy firm,
KazMunaiGas, Exxon Mobil Corp. and Russia's Lukoil.
Chevron's Chief Executive John Watson was recently in Kazakhstan
and discussed the project with the nation's political leaders, said
the country's energy minister, Kanat Bozumbayev, in an interview.
The investment is expected to produce 24,000 jobs in Kazakhstan, he
said.
"For us it's good news," Mr. Bozumbayev said. "This future
growth project is very important for us."
Chevron said the consortium will announce the final investment
decision for Tengiz at an appropriate time.
"This rigorous review of the future growth project is ongoing,"
Chevron said in an emailed statement.
The investment is among only a handful of large outlays by big
oil companies during a nearly two-year long slump in crude prices.
Companies have been forced to delay or cancel about $270 billion in
projects through March since oil prices began their long slide,
according to Rystad Energy, including expensive Arctic
developments.
Chevron has lowered its spending as its revenues and profits
take a beating, including announcing in 2014 a delay in its
expansion plans for Tengiz. The company estimated it will spend
between $17 billion and $22 billion annually over the next two
years on capital projects--down from this year's $25 billion to $28
billion budget.
The project is vital for Kazakhstan, which depends on oil for
about half its state revenue. The economy of the Central Asian
state has suffered as oil prices have more than halved since a peak
in mid-2014. The IMF forecast GDP growth of just 0.1% this year
compared with 6% in 2013 before oil prices started falling.
Tengiz's output is currently about 500,000 barrels a day, and
the expansion would boost its output to about 760,000 barrels a day
by 2021. Overall, Kazakhstan pumps about 1.6 million barrels a day,
which is forecast to decline without help from expanding
Tengiz.
The country's other huge oil project--Kashagan--has yet to start
up after gas leaks in 2013 shut down the oil field while it was
being commissioned. Mr. Bozumbayev said that the pipes and plant at
Kashagan were being inspected and the field is due to start up in
the fourth quarter of this year, maybe even as soon as October.
That $50 billion project was due to start pumping in 2005 but it
was shut down amid budget blowouts, engineering missteps and
management disputes.
Both Tengiz and Kashagan are among the most expensive oil
projects in the world because of their size and the fact that their
oil involves toxic gas that requires extra facilities to extract
sulfur. They are in remote locations where infrastructure had to be
built.
When Chevron first signed a deal to develop Tengiz with the
Kazakh government in 1993, it was unclear how the oil would be
shipped from the region that borders Russia on one side and China
on the other.
For years, the companies involved in the Tengiz development trod
a delicate path between competing interests in the region vying for
control of export routes. By 2001, the companies claimed a victory
when oil started to flow through a newly constructed pipeline link
of over 900 miles from Kazakhstan through southern Russia to the
Black Sea port of Novorossiisk.
Jefferies senior oil equity analyst Jason Gammel said the
expansion of Tengiz could give Chevron a competitive advantage over
its rivals as it demonstrates a clear plan for oil production
growth beyond 2019, something the other firms are mostly
lacking.
"Tengiz is material in terms of size and it's the most visible
component of Chevron's growth beyond 2019," Mr. Gammel said.
Write to Simon Clark at simon.clark@wsj.com and Selina Williams
at selina.williams@wsj.com
(END) Dow Jones Newswires
May 25, 2016 10:43 ET (14:43 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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