Chevron Hunts for Answers on Billion Dollar Rig Fail

Big Foot, world’s deepest Extended Tension Leg Platform (ETLP), being transported by the Dockwise vessel Mighty Servant 1 from Geoje (South Korea) to Corpus Christi (USA).

(Bloomberg) An equipment failure that’s delayed Chevron Corp.’s $5.1 billion Big Foot deepwater oil project will reduce the company’s production by less than 25,000 barrels a day in 2017, the company said.

More than a week after some of the production platform’s mooring cables sank below the surface of the Gulf of Mexico, Chevron continues to assess the damage and doesn’t know when repairs will start or finish, spokesman Kurt Glaubitz told Bloomberg Television.

Remotely-operated vehicles have been roaming the seafloor examining the nine cables that sank. The incident forced Chevron to indefinitely delay this year’s planned start of crude production from the 200 million-barrel field.

Big Foot is one of the linchpins in Chairman and Chief Executive Officer John Watson’s plan to boost worldwide production by 20 percent by the end of 2017. The delay in the project will reduce Chevron’s net increase by less than 25,000 barrels a day in 2017, Glaubitz said Wednesday. That’s about 4.5 percent of the net 549,000 barrels a day production is estimated to grow by that year.

The setback increases pressure on the company to avoid delays at the massive Gorgon and Wheatstone natural gas-export developments in Australia that are scheduled to commence this year and next, respectively.

Watson is banking on surging demand for liquefied natural gas, or LNG, in Asian economies hungry for fuel and feedstocks to make electricity and plastics. Most of the planned output from Gorgon and Wheatstone is already locked into long-term sales contracts with buyers in places like Japan and South Korea.

Displacing Coal

Watson expects LNG demand to get an additional boost as governments eventually tighten climate rules, encouraging the substitution of gas for dirtier coal.

“Natural gas is a principal source of energy that Asia needs,” Watson said during an exclusive interview with Bloomberg Television. “It’s a cleaner form of energy. It will largely displace coal in some of the markets that we serve in China and elsewhere.”

Gorgon, whose $54 billion pricetag makes it the biggest-ever project of its kind, is more than 90 percent complete and on track to begin shipping LNG by the end of this year, Watson said at the company’s annual shareholders’ meeting on May 27.

Wheatstone, a $29 billion development, is almost 60 percent complete and scheduled to commence loading LNG onto tankers in 2016, according to a project update published on Chevron’s website.

Deepwater, Shale

Together, Gorgon, Wheatstone and other smaller Chevron LNG investments will account for 43 percent of the new output the company plans to initiate worldwide by the end of 2017. That dwarfs the contributions expected from offshore oil fields and shale, according to a presentation delivered to analysts and investors in New York in March.

The Big Foot field was discovered nine years ago 4 1/2 miles (7.2 kilometers) beneath the sea surface. Plans to start pumping oil this year were scrapped on June 1 after cables needed to tether the platform to the seafloor disappeared beneath the waves for unknown reasons.

Chevron has deployed undersea robots to inspect the cables that sank, assess any damage and help the company’s engineers figure out why they failed. The floating platform that had been towed to the area in preparation for attaching the cables has since begun the journey back to shallower, sheltered waters.

Chevron plans to update investors and analysts on the new timetable for Big Foot when the San Ramon, California-based company reports second-quarter results in late July or early August.

Permian Basin

From Watson’s perspective, oil isn’t taking a permanent back seat to LNG. As Gorgon and Wheatstone near completion, Chevron also is accelerating drilling into the layers of oil-soaked shale stacked atop each other in the Permian Basin in West Texas and New Mexico.

Chevron plans to drill hundreds of wells in the Permian this year that will contribute to production growth, Watson said in the interview with Bloomberg Television.

“I expect that our shale production will, in barrels equivalent, be about equal to what Gorgon produces by the end of this decade,” Watson said.