Chevron Kazakh Venture Seeks to Pump in $6 Billion to Expand Output

by Trefis Team
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Chevron Corp.’s (NYSE:CVX) Kazakhstan venture will seek to spend between $6 to $8 billion to sustain output in the country’s prolific Tengiz oil field. [1] The budgeted amount will be used to drill wells in the region over the next five years through the TengizChevroil LLP venture. Of the amount, $1 billion will be used to drill around four wells in 2012. The Tengiz field, Kazakhstan’s largest produced around 565,000 barrels of crude oil a day (bbl/day) in 2011, which was slightly lower than its output the previous year. Chevron holds a 50% stake in the project and is the leading oil company in Kazakhstan, where other companies like Exxon Mobil (NYSE:XOM) and ConocoPhillips (NYSE:COP) also have operations.

We have a $109 price estimate for Chevron, which is at a slight premium to its current market price.

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Massive fields

The Tengiz fields is counted among the 10 biggest producing field in the world and the biggest in Kazakhstan, a country quickly gaining prominence in the global energy markets. Output from the field is mixed with sour gas – a mixture of hydrogen sulphide and some hydrocarbons. [2] The facility has the capability to separate the sour gas from the crude and then process the gas further to extract natural gas, sales gas and sulphur that can be sold separately. The field’s output was expanded from 310,000 bbl/day to 540,ooo bbl/day in a $7.4 billion project in a 5 year project that ended in 2008. The venture wants to expand the output further going ahead in the future by 250,000 and 300,000 barrels in a project expected to cost between $20 to $25 billion. This phase of expansion was announced in March last year.

The latest drilling venture announced by Tim Miller is aimed at steadying oil output from the field. [1] Production fell by 0.4% in 2011 and the company has not provided any forecast regarding the expected output levels for 2012. Upcoming projects from Kazakhstan are key for oil majors like Chevron to increase production in the next few years. With output from mature fields on the decline, many companies are being forced to work in remote regions such as Central Asia to replace depleting resources.

Understand how a company’s output impacts its stock price on Trefis.

Notes:
  1. Chevron-Led Kazakh Oil Venture Plans $6 Billion Drilling Program, Bloomberg [] []
  2. Major Expansion at Tengiz Field in Kazakhstan Completed, Chevron []
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