Undeterred by a wave of project delays and cancellations, Chevron has given the green light to a $36.8bn expansion of the Tengiz oil field in Kazakhstan. The investment is the largest made by any private sector oil company this decade, and is unusual in the sense that it comes at a time where many in the oil business are clamouring to slash capital spending and keep expansion plans on the backburner.
The investment marks the continuation of Tengizchevroil’s (TCO) Future Growth and Wellhead Pressure Management Project, which, according to according to Chevron’s Chairman and Chief Executive Officer, John Watson, “represents an excellent opportunity for the company”.
A recent wave of investment suggests an
oil recovery could be
on the cards
Already the site has undergone extensive engineering and construction planning reviews against a backdrop of a low cost climate for oil goods and services. Materials and labour are cheaper than in years past, and a recent wave of investment suggests an oil recovery could be on the cards.
Big oil firms have reduced their budgets by approximately a quarter since the start of 2015 and have slashed upwards of 30,000 jobs in a bid to weather the low oil price environment. However, as prices begin to stabilise at around $50 per barrel, oil companies are only now beginning to reassess – if not reconsider – their options. Some are treating the latest from Chevron as an inflection point, as it is the first investment of more than $10bn this year.
The field in question already accounts for more than a third of Kazakhstan’s crude output, the country being the second biggest former-Soviet oil producer, behind only Russia. The expansion will generate $120bn in added tax payments by 2033, when the Tengiz contract expires. It will also increase production by 260,000 barrels per day and TCO’s total production capacity to one million barrels. At today’s oil prices, the field will just about break even, and though the economics are not all that special, it’s a stable bet in an otherwise volatile market.