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WoodMac comment: Chevron confirms Tengizchevroil costs overrun

Published by , Deputy Editor
Oilfield Technology,

Speaking after Chevron’s confirmed cost increases and delays at the Tengizchevroil expansion in Kazakhstan in its in its third quarter 2019 results, Ashley Sherman, principal analyst, Caspian upstream said: “The 25% rise in costs – from US$37 billion to US$45billion – US$46 billion – will be an immense disappointment for Chevron (50%) and partners, including ExxonMobil (25%).

“They had intended to showcase the lessons learned from megaproject challenges experienced elsewhere before the oil price crash.

“This is also another bitter pill for major project delivery in Kazakhstan and the Caspian region – part of the world that is known for previous high-profile examples of cost and scheduling slippage. The news follows immediately after several Majors walked away from Kazakhstan’s largest offshore greenfield project (the US$5 billion Kalamkas More-Khazar development).”

He added: “At Tengizchevroil, the largest global upstream project by capex, cost pressures have been under scrutiny since 2018.

“Chevron has confirmed that the primary causes of the overruns relate to engineering – with knock-on effects on fabrication and construction; higher unit construction costs and quantities; and schedule delays.

“The news comes despite extremely strong performance on drilling and logistics during the peak investment period in 2018-19. The complex logistical chain connects distant fabrication yards in South Korea and Italy with a new port in the land-locked Caspian Sea.”

Sherman said: “Tengizchevroil already produces more than 600 000 bpd of oil. Once online, expansion will boost this to 850 000 bpd or even more. This remains fundamental to the oil and gas outlook for Kazakhstan and Chevron. The expansion project is now 70% complete, but it’s clear that there are still hard yards to come.”

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