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Chevron's (CVX) Tengiz Project Faces Cost Increase of $1.5B

Chevron Corporation's CVX ambitious Tengiz oil field project in Kazakhstan has recently encountered a significant setback. The expansion initiative, formally known as the Future Growth Project – Wellhead Pressure Management Project, is aimed at augmenting the total daily production from the Tengiz reservoir. However, unforeseen challenges have arisen, leading to a projected additional cost increase of $1.5 billion. This escalation could potentially elevate the total project cost to approximately $48.5 billion, marking a substantial deviation from the initial budget.

Project Budget and Progress Update

In October 2023, Chevron disclosed in its third-quarter earnings report that the Tengiz project budget was undergoing a revision due to slower-than-anticipated progress toward start-up. Initially budgeted at $45.2 billion, the project had already factored in a contingency of $1.9 billion in July 2021, acknowledging the potential disruptions caused by the COVID-19 pandemic. However, the recent announcement indicates a further spending escalation, highlighting the complex challenges inherent in large-scale energy projects.

Chevron, despite acknowledging the budgetary adjustments, has emphasized that its guidance for the total cost of the Tengiz expansion project remains unchanged from the ranges provided in previous earnings calls. This assertion, which cites a cost increase of 3-5%, highlights the company's commitment to managing costs amid evolving circumstances.

Project History and Ownership Structure

The Tengiz expansion project has experienced several delays, with the completion date being postponed twice from the initial mid-2022 target. The project is a joint venture, with CVX holding a 50% stake in Tengizchevroil, the entity responsible for operating the Tengiz Field. Exxon Mobil Corporation XOM and KazMunayGas, the state-owned national oil and gas company of Kazakhstan, hold a 25% and 20% stake in the venture, respectively. This collaborative ownership structure reflects the project's multinational nature as well as the strategic alliances to facilitate its implementation.

Implications and Future Outlook

The projected cost increase of $1.5 billion for the Tengiz oil field project highlights the inherent complexities and uncertainties associated with large-scale energy initiatives. While CVX remains committed to completing the project within the specified parameters, the additional costs necessitate a thorough reassessment of financial projections and risk management strategies.

廣告

In the broader context, the challenges facing the Tengiz project serve as a reminder of the dynamic nature of the energy sector and the importance of adaptive management practices. As the global energy landscape continues to evolve, companies must navigate a myriad of geopolitical, economic and operational factors to ensure the successful execution of strategic initiatives.

Conclusion

Chevron's Tengiz oil field project in Kazakhstan is facing a significant cost increase of $1.5 billion, potentially pushing the total project cost to approximately $48.5 billion. Despite the challenges posed by slower-than-anticipated progress and escalating costs, Chevron remains committed to completing the project within the stipulated parameters. The collaborative ownership structure and strategic partnerships underpinning the project highlight its significance within the broader energy landscape. As the project progresses, careful monitoring and adaptive management will be essential to mitigate risks and ensure successful outcomes in line with stakeholders' expectations.

Zacks Rank and Key Picks

Currently, CVX and XOM carry a Zacks Rank #3 (Hold) each.

Investors interested in the energy sector might look at some better-ranked stocks like Archrock, Inc. AROC and SM Energy Company SM, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock is valued at $3.22 billion. The company currently pays a dividend of 66 cents per share, or 3.30%, on an annual basis.

AROC, together with its subsidiaries, works as an energy infrastructure company in the United States. The company operates under two segments — Contract Operations and Aftermarket Services.

Denver, CO-based SM Energy is valued at $5.63 billion. The company currently pays a dividend of 72 cents per share, or 1.47%, on an annual basis.
SM, an independent energy company, engages in the acquisition, exploration, development and production of oil, gas and natural gas liquids in the state of Texas.

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