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Chevron to reduce 2014 spending despite higher costs for Gorgon LNG

12.12.2013  | 

CEO John S. Watson is counting on deep-water oil discoveries in the Gulf of Mexico and gas exports from the Indian and Pacific oceans to boost output 20% by the end of 2017. Chevron aspires to become the world’s third-largest producer of LNG after Qatar and Shell by the end of the decade.

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By JOE CARROLL and JAMES PATON
Bloomberg

Chevron plans to trim capital spending by 5.2% to $39.8 billion next year amid rising labor costs, increased drilling outlay and currency fluctuations from Canada to Iraq.

The budget for floating platforms, oil-refinery repairs, pipelines and rig rentals compares with 2013 estimated outlay of $42 billion, San Ramon, California-based Chevron said in a statement. 

The cost estimate for the Gorgon natural gas export complex in Australia rose 4% to $54 billion, the second increase in 13 months. Weather and logistical delays will postpone startup of the project off the northwest coast by about three months.

Chairman and CEO John S. Watson is counting on deep-water oil discoveries in the Gulf of Mexico and gas exports from the Indian and Pacific oceans to boost output 20% by the end of 2017. Chevron aspires to become the world’s third-largest producer of liquefied natural gas, or LNG, after Qatar and Shell, by the end of the decade.

Full-year 2013 capital spending exceeded the original $36.7 billion forecast because of acquisitions that required additional outlays, the company said.

The budget increase at Gorgon, located on Australia’s Barrow Island nature reserve off the northwest coast, follows a 21% overrun a year ago. When Chevron approved Gorgon in 2009, the company estimated it would cost $37 billion.

Lessons learned

High construction costs and a strong Australian dollar have hurt developers of LNG projects in Australia from Chevron to BG Group. Gorgon and Chevron’s Wheatstone project are among seven LNG ventures being built in Australia at a cost of more than $180 billion to meet rising Asian demand.

Chevron will weigh expanding Gorgon against competing investment proposals as costs in Australia put the nation’s competitiveness at risk, the company said last month.

Chevron is applying lessons learned at Gorgon to Wheatstone, which is almost 25% complete, the company said. Gorgon is almost 75% complete. Royal Dutch Shell Plc and Exxon Mobil Corp. are Chevron’s partners in Gorgon.

Chevron may sell some oil and gas fields that promise leaner returns than the new prospects, chief financial officer Pat Yarrington told analysts and investors during a Nov. 1 conference call. Yarrington didn’t specify what the company might be considering exiting, nor did she provide a time frame.

Exxon is the largest energy company by market value, followed by PetroChina, according to data compiled by Bloomberg.



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