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Chevron (NYSE: CVX) said on Friday it had started production at a $48 billion expansion of the giant Tengiz oilfield which will bring its output to around 1% of global crude supply.
The Tengiz field accounts for a large part of landlocked Kazakhstan’s oil production and has been a major cash generator for Chevron for decades. But its exports depend almost entirely on a pipeline that runs through Russia to the Black Sea, putting it effectively under Moscow’s control.
Flows could also be impacted by Kazakhstan’s agreement with OPEC and other major oil producers to curtail global supply in recent years.
The expansion is expected to reach full capacity of 260,000 barrels per day by June, lifting overall production at Tengiz to around 1 million barrels of oil equivalent per day, Chevron’s head of international exploration and production Clay Neff told Reuters.
Chevron shares were down 0.25% at 1240 GMT.
Tengiz is one of the world’s deepest and most complex fields due to high levels of sulphur and harsh weather conditions.
The expansion has suffered delays and huge cost overruns since launching in 2012. Investment was “at the low end” of $48 billion to $49 billion, Neff said, making it one of the world’s most expensive developments.
Chevron has a 50% stake in the Tengizchevroil joint venture which it operates, with Exxon Mobil (NYSE: XOM) holding 25%, Kazakh oil firm KazMunayGas 20% and Russian oil producer Lukoil the remaining 5%.
Tengizchevroil is expected to generate $4 billion of free cash flow in 2025 and $5 billion next year at an average Brent price of $60 a barrel, Neff said. Benchmark Brent crude oil is currently trading at around $80 a barrel.
“What this project allows us to do is not only increase production today but also extend the life of the field over time,” Neff told Reuters.
The expansion is part of Chevron’s plans to increase its own production by around 3% per year over the next five years along with strong growth in the U.S. Permian shale basin.
(Reporting by Ron Bousso; Editing by Kirsten Donovan)
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