Chevron Corporation ( CVX Quick Quote CVX - Free Report) announced that the full startup of its Tengiz Future Growth Project (FGP) in Kazakhstan has been delayed until the end of 2024. The project, which is expected to raise production at Kazakhstan's largest oil field by 260,000 barrels per day (bbl/day), or about 40%, was originally scheduled to be completed in mid-2022. Reasons Behind the Delay
The delay in the FGP was due to a number of factors, including the COVID-19 pandemic, which disrupted construction and supply chains, and the complexity of the project. The FGP, one of the largest and most complex oil and gas projects in the world, is being built in a remote area of Kazakhstan.
The delay comes at a time when Europe, which has prohibited the majority of Russian oil imports in response to the invasion of Ukraine, is heavily dependent on the Central Asian country's crude exports. The FGP is a major undertaking, involving the construction of new processing facilities, pipelines and other infrastructure.
The Budgetary Issue
The project has also been affected by cost overruns. The initial budget was $37 billion, but the latest estimates raised the cost to nearly $47 billion. Despite the delay and cost overruns, Chevron remains committed to the FGP. The project is important to Chevron's long-term growth plans, and is a major investment in Kazakhstan's economy.
Additionally, the project's timeline has witnessed multiple revisions. Originally scheduled for completion in mid-2022, it has faced delays. A draft plan published by the Kazakh government in April pushed the expected completion date to the end of 2024.
Furthermore, recent planning scenarios indicate the possibility of a further six-month delay beyond the June 2024 target. These timeline shifts reflect the intricate challenges that come with executing such a monumental project.
A Trilateral Alliance
While Chevron holds a 50% stake in the Tengiz venture,
ExxonMobil ( XOM Quick Quote XOM - Free Report) and state-owned KazMunayGas have a 25% and 20% stake, respectively. What Does This Delay Mean for Chevron?
The delay in the Tengiz FGP is a setback for Chevron, but not a major one. It may have a short-term impact on Chevron's earnings, but the company has a strong track record of delivering on its projects. The FGP is a long-term investment, and Chevron is confident about its success.
Implications for Kazakhstan
The delay also means a setback for Kazakhstan. The country is a major oil producer, and the Tengiz field is one of its most important assets. The FGP will help boost Kazakhstan's oil production and exports, create jobs and generate tax revenues.
In conclusion, the Tengiz Expansion Project is a testament to the complexities of modern energy production and the global dynamics that shape it. While challenges persist, the project's long-term impact on Kazakhstan's energy sector and the global oil market is yet to be seen. So, the delay is a disappointment, not a disaster. The project is still on track to be completed, and will deliver the expected benefits to Kazakhstan.
ExxonMobil is a global oil and gas exploration and production company, operating in various segments, including Upstream, Energy Products, Chemical Products and Specialty Products.
Zacks Rank and Key Picks
Currently, both CVX and XOM carry a Zacks Rank #3 (Hold).
A couple of better-ranked stocks for investors interested in the
energy sector are CVR Energy ( CVI Quick Quote CVI - Free Report) , sporting a Zacks Rank #1 (Strong Buy), and Archrock ( AROC Quick Quote AROC - Free Report) , carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
CVR Energy is valued at $3.72 billion. In the past year, its shares have risen 7%.
CVI currently pays a dividend of $2 per share, or 5.4% on an annual basis. Its payout ratio currently sits at 30% of earnings.
Archrock is valued at around $1.94 billion. It delivered an average earnings surprise of 15.08% for the last four quarters and its current dividend yield is 5%.
Archrock is a provider of natural gas contract compression services and aftermarket services of compression equipment.