CHEVRON’S massive Gorgon project has been dealt a blow after the energy giant announced the estimated price tag for development had ballooned to US$54 billion.
The latest cost forecast for the liquefied natural gas project represents a US$2 billion increase on the previous estimate of US$52 billion.
Chevron announced the cost overrun for Gorgon in its annual December capital and exploratory budget for the year ahead, the same way it informed investors 12 months ago about the projects first projected increase.
In the 2012 statement, Chevron blamed the jump in Gorgon’s price tag from US$37 billion to US$52 billion to labour costs and productivity associated with Barrow Island site infrastructure, logistics challenges, weather delays and currency impacts due to the strengthened Australian dollar.
This time Chevron provided no additional commentary behind the latest increase in cost estimate, but reassured investors the project’s underlying financials were robust.
“Gorgon project economics are attractive,” Chevron vice chairman George Kirkland said. “We continue to make steady progress against key project milestones.”
The project, which has been under construction for four years, is about 75 per cent complete. About 75% of Chevron’s combined LNG offtake from Gorgon and its other major development, Wheatstone, are committed under firm, long-term sales and purchase agreements
“These LNG developments are two of our most important future legacy assets, representing approximately 400,000 barrels a day of net production at full capacity,” Mr Kirkland added.
“They will be substantial contributors to our cash flow for decades to come.”
The Chevron-operated Gorgon joint venture project, in which Shell and ExxonMobil have a stake, is one of the world’s largest natural gas projects and the largest single-resource development in Australia.
The project includes a three-train LNG facility on Barrow Island which will produce 15.6 million metric tonnes of LNG per year from the Gorgon and Jansz-Io gas fields off the northwest coast of Western Australia.
Chevron also detailed in its December announcement that it would spend US$39.8 billion on capital and exploratory investments in 2014, which is about US$2 billion lower than expected total investments for 2013.
Chevron chief executive and chairman John Watson said the company expected 2013 to be a relative peak year for investments as it wrapped up several resource acquisitions.
“We also anticipate 2014 will represent the peak year for spending on our Australian LNG projects as we move them closer to first production,” he said. “Overall, we have an attractive portfolio of investment opportunities which we will continue to fund in a disciplined fashion to grow value and shareholder distributions.”
Chevron will commit about 90% of the 2014 spending program to upstream crude oil and natural gas exploration and production projects, while 8% will be invested in its downstream business.
Outside of its Australian projects, the company will direct its upstream capital to developments in Kazakhstan, Nigeria, Canada, Angola, Argentina and the United Kingdom.
Chevron has set aside US$3.2 billion for its global exploration portfolio in 2014 while expenditures of about US$1 billion are budgeted for technology, power generation and other corporate activities.