CVX Chevron Corporation

By Simon Clark in Astana and Selina Williams in London 

ASTANA, Kazakhstan -- Chevron Corp. and its partners agreed to invest up to another $37 billion to increase output at a Kazakhstan oil field that is among the world's most expensive, the country's energy minister said on Wednesday, a rare big spending commitment during a prolonged crude price slump.

The investment in the oil field known as Tengiz would begin in 2017 and come on top of the about $37 billion already spent by Chevron, the field's operator, and its partners: state-owned energy firm, KazMunaiGas, Exxon Mobil Corp. and Russia's Lukoil.

Chevron Chief Executive John Watson was recently in Kazakhstan and discussed the project with the nation's political leaders, said Kanat Bozumbayev, the country's energy minister, in an interview. The new 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 would announce the final investment decision for Tengiz at an appropriate time, adding a "rigorous review of the future growth project is ongoing."

The investment is among a handful of large outlays by major 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 consultants Rystad Energy, including expensive Arctic developments.

Chevron has lowered its spending as its revenues and profits take a beating, including disclosing in 2014 a delay in its expansion plans for Tengiz. The company estimated its overall capital spending will range between $17 billion and $22 billion annually over the next two years -- down from this year's between $25 billion and $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 gross domestic product 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 26, 2016 02:48 ET (06:48 GMT)

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