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Chevron Targets Upstream GOM, Global Development in 2009

February 2, 2009
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Chevron Corp. has launched a capital and exploration program of $22.8 billion for 2009, which closely mirrors the spending levels of a year ago. Three-quarters of the spending is slated for the upstream, including several prospects in the deepwater Gulf of Mexico (GOM), the major said last week.

Nearly $17.5 billion of the spending is targeted for upstream natural gas and oil projects worldwide. The rest of the budget mostly focuses on downstream operations. Included in the 2009 program is $1.8 billion of spending by Chevron's affiliates, which do not require cash outlays by the company's consolidated companies.

"Much of our 2009 spending continues to be on large, multiyear projects aimed at increasing energy supplies to meet global demand and also improving operating efficiency and reliability," said CEO Dave O'Reilly. "About 10% of the budget is for large, one-time payments related to upstream production concessions outside the United States."

A "significant portion" of the upstream spending relates to development projects that build on the company's exploration results in recent years, including opportunities in the deepwater GOM, western Africa and the Gulf of Thailand. Funding also is earmarked to evaluate other prospective areas, including Northwest Australia.

Chevron's George Kirkland, executive vice president of Upstream and Gas, said the start-ups this year are expected to include Tahiti in the Gulf of Mexico, Tombua-Landana offshore Angola and Frade offshore Brazil.

Chevron holds a 58% stake in the Tahiti project. Estimated production is expected to be about 70 MMcf/d of gas and 125,000 b/d of oil. First production is set for 3Q2009, about a year later than originally scheduled. Construction of the massive project, which is about 140 miles offshore and 190 miles south of New Orleans, began in late 2005, but a contractor discovered mooring system problems in June 2007; a similar problem was found on a BP plc deepwater project as well (see NGI, July 2, 2007).

"We also anticipate significant production increases from recent start-ups at Agbami offshore Nigeria and Blind Faith in the Gulf of Mexico and from expansion activity at Tengiz in Kazakhstan," Kirkland said.

Among the projects getting a share of Chevron's 2009 budget are the deepwater Perdido field and the prospective Jack-St. Malo fields.

Perdido, scheduled to ramp up in 2010, is located in the Alaminos Canyon of the GOM in a foldbelt of ultra-deep waters 7,500-10,000 feet deep. Additional folds are believed to exist under the Sigsbee salt sheet that bounds the Perdido, Walker Ridge and Mississippi Fan foldbelts on three sides (see NGI, March 24, 2003).

Williams in 2007 announced plans to develop the Perdido Norte Project to provide gas and oil infrastructure for units of Chevron, BP and Royal Dutch Shell (see NGI, Aug. 6, 2007).

The Jack No. 2 well, located at Walker Ridge Block 758, was completed by Chevron and its partners Devon Energy Corp. and a predecessor company of StatoilHydro in 2006 (see NGI, Sept. 11, 2006). Discovered in 2004, the Jack well was completed using the deepest extended drill stem test in history in 7,000 feet of water and more than 20,000 feet under the sea floor.

The St. Malo discovery well, also in the Walker Ridge area, turned up 450 feet of net pay, followed by an appraisal well with about 400 feet of net pay.

Chevron geologists in 2005 estimated the Lower Tertiary held 3-15 billion bbl of oil. If 15 billion bbl of oil were discovered in the trend, it would increase U.S. oil reserves by 50%. Current reserves stand at about 29.2 billion bbl.

Chevron Friday reported net income of $4.90 billion ($2.44/share) in 4Q2008, up from $4.88 billion ($2.32/share) in the year-ago period. Results in the last three months of 2008 included a $600 million gain on an upstream asset-exchange transaction. Foreign-currency effects also lifted net income by $478 million in the period, compared with a reduction to earnings of $2 million in 4Q2007.

Sales and other operating revenues in the fourth quarter 2008 were $43 billion, compared with $60 billion a year earlier. For the year 2008, sales and other operating revenues were $265 billion, versus $214 billion in 2007.

In the United States production began last year at Chevron's 75%-owned and operated Blind Faith project in the deepwater GOM. Total volumes are expected to ramp up in 1Q2009 to around 65,000 b/d of crude and 55 MMcf/d of natural gas. Blind Faith was the third major project completed in the second half of 2008.

Chevron also added 1.34 billion boe of proved reserves in 2008. These additions would equate to 146% of boe production for the year, the company noted. Included in the additions are favorable effects of lower year-end prices on the calculation of reserves associated with production-sharing and variable-royalty contracts.

Net output was 619,000 boe/d in the final period, down 111,000 boe/d from a year earlier. About 75% of the decline was associated with the continuing effects of production that was shut-in as a result of September hurricanes in the GOM. The net liquids component of production was down 12% at 399,000 b/d, and net natural gas production declined 21% to 1.3 Bcf/d.

At the end of 2008, almost 50,000 boe/d of Chevron's production remained offline in the GOM because of hurricanes Gustav and Ike. Restoration of the volumes, said the producer, will "occur as repairs to third-party pipelines and producing facilities are completed."

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