Chevron Sees US Deepwater Drilling Resuming By Midyear

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February 24, 2011

MIDLAND, Texas (Dow Jones)–Chevron Corp. (CVX), the second-largest U.S. oil company, expects to be able to resume its ambitious drilling program in the deep waters of Gulf of Mexico before the first half of 2011 is over, company executives said Wednesday.

“We are getting at the end of the road,” Gary Luquette, Chevron’s head for exploration and production in North America, said. “One time we thought it will be the end of the year, now our estimate is that it could be before the middle of the year.”

The first Chevron wells that are expected to receive permits are Buckskin, an appraisal well, and Moccasin, an exploration well. Both were suspended when the Obama administration enacted a moratorium on deepwater drilling last year, after the Deepwater Horizon explosion and oil spill.

The industry’s hopes for a return to deepwater activities were raised by the announcement last week of an operational system to contain possible oil spills. U.S. regulators have said the lack of a response system had been one of the main reasons they hadn’t approved any new permits, despite the official end of the drilling moratorium last October.

Drilling in the Gulf is critical to the growth plans of Chevron, which, like other large integrated oil companies, constantly struggles to find enough oil to keep its large production going. Central Asia and Australia are also critical to Chevron’s growth.

Chevron Vice Chairman George Kirkland, speaking along with Luquette in an interview with Dow Jones Newswires, said Chevron is ready to move forward with plans to intensify production at the massive Tengiz oilfield in Kazakhstan. “Our view is that we can do another expansion that is about 250,000 to 300,000 barrels of oil a day,” said Kirkland, who leads the company’s global oil and gas segment. “We are ready to move” into front engineering and design “some time this year.”

Kirkland said the company is confident on moving forward because last year an expansion of the Caspian pipeline moved into its engineering and design stage.

The company is also betting on Australia’s natural gas reaches through investment in the massive Gorgon liquefied natural gas project. Chevron will announce the timing of a decision to move forward on the project’s expansion at its analyst meeting in March, Kirkland said. “We believe we already have found enough gas for an expansion trend in Gorgon,” Kirkland said.

Kirkland added that Chevron still expects to increase 2011 production by 1% to about 2.79 million barrels of oil equivalent, despite concerns that higher oil prices could affect the company’s production due to its production-sharing contracts. Some of Chevron’s contracts with national oil companies specify that if the price of oil rises, Chevron’s share of a project’s output falls. “We are holding our production guidance for 2011,” Kirkland said.

Kirkland also said that the price of West Texas Intermediate crude, the benchmark for U.S. oil prices, doesn’t really reflect global prices. The crude has been trading at a sharp discount to Brent, the global benchmark, due to a glut of WTI at the site where the crude is delivered and stored, near Cushing, Okla. The discount widened to as much as $19 a barrel in recent weeks, but Kirkland said it’s not going to be a “long-term problem.” Luquette said the differential between WTI and Brent will narrow with the expansion of the Keystone pipeline, which is due to become operational in 2014.

-By Isabel Ordonez, Dow Jones Newswires

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