Chevron’s Deepwater Production To Receive A Boost From The Start-up Of Jack/St. Malo

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Chevron (NYSE:CVX) recently reached a key milestone in pursuit of ramping up its net hydrocarbon production from around 2,600 thousand barrels of oil equivalent per day (MBOED) currently to 3,100 MBOED by 2017, as it announced the first production from the first stage of development of the Jack and St. Malo fields located in the Gulf of Mexico deepwater. The project is expected to boost Chevron’s net oil and gas production by around 50 MBOED at its peak. [1]

Chevron’s overall deepwater production was around 350 MBOED last year. Hydrocarbons produced from deepwater fields in the Gulf of Mexico made up around 60% of that. The company expects to boost its overall net hydrocarbon production from deepwater reserves by ~30% by 2017. We believe that the start-up of Jack/St. Malo and Tubular Bells deepwater projects recently should help the company achieve this target. [2]

Chevron is the second largest energy company in the U.S. after Exxon Mobil (NYSE:XOM). The company manages its investments in subsidiaries and affiliates, for which it provides administrative, financial, management, and technological support.  This extends both to its U.S. subsidiaries and to its international subsidiaries, engaged in fully integrated petroleum, chemicals, and mining operations, as well as power generation and energy services. It generates annual sales revenue of around $230 billion with a consolidated adjusted EBITDA margin of ~21.8%. [2]

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We currently have a $120 price estimate for Chevron, which is around 5% above its current market price.

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Chevron expects to grow its net upstream production from around 2,600 MBOED last year to 3,100 MBOED by 2017. This is not going to be an easy task for the company because the base assets that contributed to its 2013 production are projected to be producing just around 2,200 MBOED by 2017, given a normal 4% annual rate of decline. Therefore, the company would have to add new production of around 900 MBOED in a period of just four years. This compares to a history of relatively flat upstream production reported by the company since 2007. According to our estimates, Chevron will draw around 23% of the total projected growth in its net oil and gas production from the start-up and subsequent ramp-up of the following deepwater projects. [2]

Jack/St. Malo: The Jack and St. Malo oilfields are situated in Walker Ridge blocks 758, 759, and 678 of the U.S. Gulf of Mexico. The fields are located 40 km away from each other and are being jointly developed with a floating production unit (FPU) located between them. Chevron holds a 50% operating interest in the Jack field, while Maersk and Statoil hold 25% each. The company is also the operator of the St. Malo field with a 51% interest. Other partners in the St. Malo field include Petrobras (25%), Statoil (21.50%), ExxonMobil (1.25%), and ENI (1.25%). With a planned production life of more than 30 years, the first stage of development that recently completed at a cost of around $7.5 billion, is anticipated to recover in excess of 500 million oil-equivalent barrels from the two fields. [1]

Tubular Bells: Tubular Bells is a deepwater oil and gas field located in Mississippi Canyon Block 725 of the United States Gulf of Mexico. The field lies in water depths of approximately 1,310 to 1,400 meters and is situated about 217 km southeast of New Orleans, Louisiana. Hess Corporation, an integrated energy company located in  New York City, holds a  57.14% operating interest, while Chevron, its co-partner in the project, holds the remaining 42.86% interest in the project. First production from the Tubular Bells project, which is expected to deliver around 50 thousand barrels of oil equivalent per day at its peak, was announced last month. [3]

Papa-Terra: The Papa-Terra field is a heavy crude oil field located in the Campos Basin, offshore Brazil. Petrobras (NYSE:PBR) is the operator of the field with a 62.5% interest, while the remaining 37.5% interest is held by Chevron. The $5.2 billion project that came online in November last year includes a floating production, storage and offloading vessel (FPSO), and a tension leg wellhead platform with a design capacity of around 146 MBOED. [2]

Big Foot: Discovered in January 2006, the Big Foot field is considered to be one of the larger oil discoveries in the Gulf of Mexico. It is estimated to hold oil and gas reserves of over 100,000 MBOE. Chevron is the operator of the field with a 60% interest. Other partners in the project include Statoil (27.5%) and Marubeni Oil & Gas (12.5%). The project with a design capacity of around 79 MBOED is expected to come online next year at a cost of over $5 billion. [2]

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Notes:
  1. Chevron Announces First Oil From Jack/St. Malo Project In The Gulf of Mexico, chevron.com [] []
  2. Chevron SEC Filings, sec.gov [] [] [] [] []
  3. Chevron Confirms First Oil Production From Tubular Bells In The Gulf of Mexico, chevron.com []