Chevron Reaps Rewards from Gorgon, North American Projects as Wheatstone LNG Nears Production

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Researched by Industrial Info Resources (Sugar Land, Texas)--Chevron Corporation (NYSE:CVX) (San Ramon, California) benefited from two of its highest-profile developments in its most recent quarter: the Gorgon liquefied natural gas (LNG) project in Australia ran above nameplate capacity, and its Permian Basin assets saw record production. The company's highly anticipated Wheatstone LNG Project is expected to see first production next month. But, as with many other exploration and production companies in the past quarter, Chevron is paring spending for the foreseeable future. Industrial Info is tracking nearly $98 billion in active projects involving Chevron, including the Gorgon and Wheatstone facilities, and major work throughout North America.

Major operational successes, coupled with stronger sales prices, led the company to profits of $1.5 billion in second-quarter 2017, an about-face from net losses of the same amount in second-quarter 2016. Revenues were reported to be about $35 billion, a 20% increase from last year's second quarter. Natural gas prices saw the strongest growth, all but doubling to $2.32 per thousand cubic feet from $1.21 last year, while the average sales price per barrel of U.S. crude oil and natural gas liquids was $41, up from $36 in second-quarter 2016. Oil and gas production improved 10%.

The first phase of one of Chevron's longest-gestating projects, the Wheatstone liquefied natural gas (LNG) production plant, in the process of starting up and is set to see its first LNG produced next month, although full production is not expected until next year. The $6.38 billion production platform and $1.6 billion subsea pipeline remain under construction but are partly operational, supplying natural gas to the inlet for the $11.96 billion first phase of the onshore LNG production plant.

The first phase comprises two trains, each with a 4.45 million-metric-ton-per-year capacity. Executives called early well performance "encouraging" in an earnings-related conference call, and said that LNG production from the first of the two trains is expected to follow next month. They added that Train 2 construction is "progressing well," and it is on track to start up six to eight months after Train 1. For more information, see Industrial Info's project reports on the first phase of the plant, the production platform and the subsea pipeline.

"There's really no construction going on at all in Train 1, and commissioning is largely complete," said James William Johnson, the executive vice president of Upstream for Chevron, in the conference call. "In Train 2, we still are in bulk construction mode. But we expect to see that winding down in the fourth quarter and at this point in time, really don't see any particular on obstacles or challenges in our path to getting Train 2 complete and getting into the commissioning and start-up."

Chevron reported that all three trains at the the Gorgon LNG project offshore Western Australia "have achieved or exceeded nameplate capacity and are operating smoothly." The company also is weighing its prospects for an estimated $8 billion fourth train at Gorgon, which, as currently envisioned, would add another 5.2 million tonnes per year of LNG production, bringing the overall capacity to 20.8 million tonnes per year. The company also began design work on a $1.2 billion offshore expansion in the Greater Gorgon Gas fields, off the coast of Barrow Island, which includes the installation of a feed gas pipeline system and the construction of additional subsea production wells. For more information, see Industrial Info's project report. For more information, see Industrial Info's project reports on the proposed fourth train and the gas fields expansion.

Executives also anticipate further activity in the Permian in the second half of the year, as well as other major North American projects, such as the $5.1 billion Big Foot offshore oil and gas production platform in the Gulf of Mexico. Completion of Big Foot's 75,000-barrel-per-day (BBL/d) crude oil and 25 million-standard-cubic-foot-per-day natural gas facility is expected in mid-2018, after more than seven years of construction. Executives said the platform itself will be shipped to the location before the end of the year. For more information, see Industrial Info's project report.

In Canada, first oil is expected before the end of the year at the $6 billion-plus Hebron Offshore Crude Oil Production Platform in the Labrador Sea. The platform was installed on location during the quarter and is in its final phases of commissioning. The project is led by Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), and includes Suncor Energy (NYSE:SU) (Calgary, Alberta), Statoil ASA (NYSE:STO) (Stavanger, Norway) and Nalcor Energy (St. John's, Newfoundland and Labrador). For more information, see Industrial Info's project reports on Hebron's topsides, gravity-based structure and subsea development.

Capital expenditures for the quarter stood at $3.2 billion, a 30% drop from the same period last year. With major projects coming online in the near term, full-year spending has been reduced from earlier predictions to $19 billion. With oil prices trending lower, exploration and production companies are taking a more conservative outlook on spending; for more information, see July 26, 2017, article - Anadarko Slashes Capital Spending for 2017 as E&P Companies Face the Return of Low Oil Prices; July 28, 2017, article - ConocoPhillips Cuts Back on Capital Spending, Prepares for Long Haul of Low Oil Prices; and July 31, 2017, article - Calpine Eyes Company Sale as Low Natural Gas Prices Stall Projects, Pummel Profits.

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