Shares at US supermajor Chevron took a hit on Friday, falling the most in more than a year, after the company said costs will rise at a massive oilfield project in Central Asia, according to a Bloomberg report.
Chevron fell more than 6% in early trading following the announcement that costs at the company’s $45 billion Tengiz project in Kazakhstan will rise by about 4% due to a slower than expected start-up that had been years in the making.
The company will need to pay an extra $1 billion for its share of the capital spending, meaning that the operation’s free cash flow will drop 20% from 2025. Output will be lower than expected in 2023 and 2024.
The new outlook comes on top of a 25% rise in the operation’s cost estimate back in 2019. Tengiz is a critical part of Chevron’s pledge to grow global production by 3% a year.
In a conference call, Chevron chief executive Mike Wirth acknowledged that “there has been a reaction apparently in the market this morning,” and attempted to reassure investors that there would be no more cost overruns or delays.
“We sent in an independent team to give us a kind of a cold eyes assessment on cost and schedule,” he said.
Tengiz has suffered from engineering problem at the outset, and mobilising tens of thousands of workers was delayed by the Covid-19 pandemic.
However, the biggest challenge was its sheer complexity. Chevron had to re-do electrics on the entire field and replace infrastructure that dated back to the Soviet era.
