Chevron announced last week its capital and exploratory budget for 2019, which sees the first annual increase in spending since the 2014 oil price crash.
While most of the investment is geared toward short-cycle projects that could start bringing in cash flows within two years, the U.S. supermajor continues to channel a significant portion of its upstream investment into a major capital-intensive project to boost the production of a supergiant oil field in western Kazakhstan.
Chevron will invest US$4.3 billion in 2019 in the Future Growth Project at the Tengiz field which lies deep beneath the western Kazakhstan steppe—the deepest producing supergiant oil field and the largest single-trap producing reservoir in existence. The investment in boosting production at the giant oil field will take most of Chevron’s US$5.1 billion upstream program for major capital projects in 2019. For this year, Chevron had allocated US$3.7 billion to the Tengiz field expansion project.
The Kazakhstan field expansion and the U.S. shale patch are the two pillars of Chevron’s capital spending for next year—growing shorter-cycle shale production and continuing investments in a supergiant oil field that is expected to pump oil for decades.
For 2019, Chevron has earmarked US$3.6 billion for expanding its production in the Permian and another US$1.6 billion will be invested in other shale plays in the United States. That makes a total of US$5.2 billion for U.S. shale, which is substantially higher than this year’s shale budget of US$4.3 billion.
“Our 2019 budget supports a robust portfolio of upstream and downstream investments, highlighted by our world-class Permian Basin position, additional shale and tight development in other basins and our major capital project at TCO in Kazakhstan,” Chevron chairman and CEO Michael K. Wirth said, commenting on next year’s budget.
Chevron holds 50 percent in the operator of the Tengiz field, Tengizchevroil (TCO), in which the other shareholders are Kazakhstan’s state-held energy firm KazMunayGas with 20 percent, ExxonMobil Kazakhstan with 25 percent, and LukArco with 5 percent.
The so-called Future Growth and Wellhead Pressure Management Project (FGP-WPMP) is planned to increase crude oil production at Tengiz by about 260,000 bpd, and was estimated to cost US$36.8 billion when Chevron approved the expansion project back in 2016.
The FGP-WPMP, with first oil planned for 2022, is expected to boost the Tengiz crude oil production capacity by about 260,000 bpd, and the field’s total production will increase to around 1 million barrels of oil-equivalent per day, Chevron says.
Tengiz and Kazakhstan operations continue to be a priority for Chevron, while the U.S. major is considering selling its interests in the oil industry of another former Soviet republic—Azerbaijan, as it is re-aligning its global operations to its new priorities after the downturn. Chevron is looking to sell its 9.6-percent stake in the giant Azeri oil field Azeri-Chirag-Gunashli (ACG) in the Caspian Sea and its 8.9-percent interest in the BTC pipeline, which carries oil from the ACG field and condensate from Shah Deniz across Azerbaijan, Georgia, and Turkey.
Chevron is currently reviewing its global asset portfolio and has “decided to initiate the process of marketing, with a view to a potential sale, of our Chevron affiliate interests in the Azeri Chirag and Deep Water Gunashli (ACG) project and the Baku-Tbilisi-Ceyhan (BTC) Pipeline,” the company said in a statement to Reuters last week.
The U.S. oil and gas major is not breaking from the Big Oil pack when it comes to re-aligning priorities for the next few years—betting big on shorter-term cash-flow generators like the U.S. shale patch and high-grading the global portfolio to boost production at major oil assets for decades to come.