The Rising Influence of Rising Affluence

[DewDiligence]

Chevron Invests $7.5B in Deepwater GoM Projects

[This amount comprises almost half of CVX’s entire 2010 cap-ex budget for upstream ops, so it’s serious money even for a company as large as CVX. (The $7.5B will not all be spent in one year, of course.)]

http://online.wsj.com/article/SB10001424052702304023804575566102015982556.html

›OCTOBER 22, 2010
By ISABEL ORDONEZ

Chevron Corp. said Thursday it will invest $7.5 billion to develop two of the Gulf of Mexico's largest unexploited oil fields.

The oil giant's decision signals that companies are still willing to stake their future on the deep waters of the Gulf's outer reaches, despite uncertainty about the fallout from BP PLC's oil spill. U.S. regulators are in the midst of implementing stricter safety and environmental rules for the offshore energy industry in the aftermath of the environmental disaster unleashed when a deep-water drilling rig burned and sank in April.

The newly sanctioned projects—Jack and St. Malo—represent two of the biggest finds of the last decade in the U.S. Gulf, potentially holding 500 million barrels of recoverable oil and gas. Production is expected to begin in 2014, in 7,000 feet of water roughly 280 miles south of New Orleans.

Both fields are located in a region of the Gulf known as the lower tertiary where the energy industry has made several large finds in recent years but only one field is currently producing.

"The lower tertiary is recognized as a huge resource with the potential for long life projects of up to 30 to 40 years," said Chevron Vice Chairman George Kirkland in prepared remarks.

The San Ramon, Calif., company's confidence in the region's potential comes despite uncertainty about increases in environmental-liability caps and costs for companies operating in the area expected to come as result of the oil spill, said Fadel Gheit, an analyst with Oppenheimer & Co.

Chevron, the second-largest U.S. oil-and-gas company by market value after Exxon Mobil Corp., has been spending heavily in the last five years to reverse a rapid decline in production. Despite regulatory uncertainty, the U.S. Gulf remains an attractive bet for U.S. oil companies as one of the only remaining spots where state-run firms don't have first crack at major new discoveries. [According to #msg-44482939, the industry also has a high success rate in the GoM relative to other parts of the world.]

Last year Chevron announced plans to invest $37 billion in the first phase of the liquefied-natural gas Gorgon Project in Western Australia, which is expected to start production in 2014. The company has also said it's on track to make a final investment decision on its proposed Wheatstone liquefied natural gas project in 2011, also in Australia.

Chevron hasn't announced yet its next-year capital expenditure budget, but the pace of investment required to develop Gorgon, Wheatstone and the two Gulf of Mexico projects could increase the company's spending in 2011 to $24 billion, from about $22 billion this year [of which $17.3B is for upstream ops: #msg-44482939], said Edward Westlake, an analyst with Credit Suisse.

Chevron, one of the Gulf's top holders of drilling leases, has a 50% working interest in the Jack field and a 51% stake in the Malo field. The company's producing holdings in the Gulf pump out 149,000 barrels a day of oil and 484 million cubic feet of natural gas, along with 14,000 barrels a day of natural gas liquids in 2009.

Chevron also has a 37.5% stake in Perdido, which in March became the first lower-tertiary project to begin production. The field is operated by Royal Dutch Shell PLC.‹