Chevron drilling 43 prospects to stem slide in output
Chevron Corp., the second-biggest US oil company, is drilling 43 major prospects from Australia to Canada after
posting its biggest drop in output since 2003.
New fields will allow Chevron to meet its target of 4 % production growth this year without acquisitions, Chief
Executive Officer David O'Reilly said in a meeting with analysts in New York. San Ramon, California-based Chevron
plans to spend $ 22.8 bn this year to add new sources of petroleum and expand refineries, keeping its capital budget
unchanged after crude dropped $ 100 a barrel from July's all-time high.
O'Reilly, a 62-year-old native of Ireland who was trained as an engineer in Dublin, is trying to stem nine straight
quarters of declines in production, even as costs for the most prized rigs and services remain near 2008's peaks.
Chevron spent $ 10.49 per barrel of oil produced last year, 20 % more than its bigger US rival, ExxonMobil.
"It's a margin squeeze," said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. "But there's nothing much
you can do about supply contracts that you signed last year. They can't be renegotiated."
Project delays
Development of some of the company's fields has been deferred until construction costs decline and crude prices rise,
O'Reilly told analysts.
"We believe we'll get better economics by holding back," O'Reilly said. "Our long-term view hasn't changed. We never
got caught up in $ 140 oil. You could already tell when oil got to $ 140 that demand was falling."
In February, Chevron said it delayed the start of output at a trio of Nigerian projects that are expected to add
123,000 barrels of oil equivalent a day to the company's production. Worldwide, the company raised cost targets for
some of its biggest projects by $ 7.3 bn.
O'Reilly is targeting a 4 % increase in worldwide production in 2009 to the equivalent of 2.63 mm bpd, according to
an annual report filed on Feb. 26 with the US Securities and Exchange Commission. Output dropped 3.4 % last year,
Chevron'sbiggest decline in half a decade.
Costs rise
The Agbami oilfield, a development off the coast of Nigeria that began production in July, will cost an estimated $ 7
bn, 30 % more than planned, Chevron said in February. The company intends to raise output from Agbami by 92 % this
year to 250,000 barrels of crude a day.
Nigeria accounted for 6.2 % of Chevron's worldwide output last year, tying for fourth-largest source with Angola,
behind the US, Indonesia and Thailand, the filing showed.
In Canada, Chevron said the Athabasca Oil Sands Project expansion will cost $ 13.7 bn, exceeding a previous estimate
of $ 10.2 bn. The expansion is still set to begin production next year, according to the filing. Chevron owns 20 % of
the development, which Royal Dutch Shell operates.
Energy companies including ConocoPhillips and Marathon Oil are cutting capital budgets after crude plunged 70 % from
a record $ 147.27 a barrel reached in July. Worldwide oil demand will fall an estimated 1.1 % this year after sliding
0.4 % in 2008, the International Energy Agency said on Feb. 11.
OPEC cuts
"Low oil prices inevitably mean less investment," OPEC Secretary General Abdalla el-Badri said in a March 6
statement. "Oil prices need to be at levels to help sustain economic growth, by supporting longer-term energy
industry investments across the board."
The Organization of Petroleum Exporting Countries, source of 40 % of the world's crude, may decide to cut output when
the cartel meets in Vienna on March 15, Mohammad Ali Khatibi, Iran's OPEC governor, said in February.
Chevron derives 20 % of its oil and gas from OPEC nations, including Angola, Venezuela and the Partitioned Neutral
Zone shared by Saudi Arabia and Kuwait. OPEC production cuts in 2007 and 2008 had no impact on Chevron's output, the
company said in February's SEC filing.
For Chevron, oil and gas wells in the Asia-Pacific region were the biggest contributors to profit last year,
accounting for $ 4.31 bn, or 21 %, of net income in the company's so-called upstream business.
