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Chevron (CVX) Faces Rising Costs and Delays in Tengiz Project
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Chevron Corporation (CVX - Free Report) is reportedly facing significant cost increases and schedule setbacks in its ambitious project to boost oil production at the Tengiz field in Kazakhstan. According to sources, the total project expenditure is now projected to reach $48.5 billion, marking a steep rise from the initial budget of $37 billion.
The Budgetary Expansion: Insights and Implications
During its third-quarter earnings report in October, Chevron disclosed an upward revision in the budget allocated for the Tengiz project. Initially estimated at $45.2 billion, the budget has witnessed a 4% increase due to a slower-than-anticipated startup phase.
Sources close to the matter revealed an additional $1.5 billion expenditure reserved for project enhancement, highlighting the scale and complexity of the work.
Chevron's Official Statement and Financial Projections
The company’s official statement, released on a recent Thursday, reaffirmed its commitment to the Tengiz expansion initiative. Despite the budgetary adjustments, Chevron asserted that its guidance for the total project cost remains consistent with the figures communicated during its previous earnings calls. The company's financial projections indicate a modest increase of 3-5%, encapsulating the dynamic nature of the project's financial landscape.
Contingency Planning Amid Uncertainty
In response to the unprecedented challenges posed by the COVID-19 pandemic, Chevron disclosed a contingency reserve of $1.9 billion in July 2021. This proactive measure aimed to mitigate schedule uncertainties and ensure the seamless progression of the Tengiz expansion project despite external disruptions. The allocation of contingency funds highlights Chevron's meticulous approach toward risk management and operational resilience.
Project Milestones and Delays: A Comprehensive Overview
The Tengizchevroil venture, renowned as the Future Growth Project, has encountered several milestones and setbacks throughout its trajectory. Originally budgeted at $37 billion, the project has surpassed its initial financial estimates, signaling the magnitude of its scope and technological complexity.
Moreover, the completion timeline has witnessed multiple revisions, with the full startup now scheduled for the second quarter following year.
Stakeholder Dynamics and Partnership Synergies
The Tengizchevroil venture represents a collaborative partnership among Chevron, Exxon Mobil Corporation (XOM - Free Report) and KazMunayGas, the state-owned entity of Kazakhstan. With Chevron holding a 50% stake in the venture, XOM and KazMunayGas maintain ownership shares of 25% and 20%, respectively.
This tripartite alliance highlights the strategic alignment of interests among industry leaders and the significance of international collaboration in driving energy sector advancements.
Conclusion
Chevron's ambitious attempt to boost oil output at Kazakhstan’s Tengiz field stands as a testament to the company's unwavering commitment to innovation and growth. However, the ballooning costs and timeline setbacks surrounding Chevron's Tengiz expansion project present a significant hurdle for the company. With a revised budget of $48.5 billion and a launch pushed back to the second quarter of 2024, CVX faces heightened pressure to ensure the project's success.
Zacks Rank and Key Picks
Currently, CVX and XOM carry a Zacks Rank #3 (Hold) each.
Murphy USA is valued at around $8.63 billion. In the past year, the company’s shares have surged 67.3%.
MUSA markets retail motor fuel products and convenience merchandise, operating retail stores under the brands Murphy USA, Murphy Express and QuickChek.
Archrock is valued at $2.93 billion. The company currently pays a dividend of 66 cents per share, or 3.53%, on an annual basis.
AROC, together with its subsidiaries, works as an energy infrastructure company in the United States. The company operates under two segments — Contract Operations and Aftermarket Services.
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Chevron (CVX) Faces Rising Costs and Delays in Tengiz Project
Chevron Corporation (CVX - Free Report) is reportedly facing significant cost increases and schedule setbacks in its ambitious project to boost oil production at the Tengiz field in Kazakhstan. According to sources, the total project expenditure is now projected to reach $48.5 billion, marking a steep rise from the initial budget of $37 billion.
The Budgetary Expansion: Insights and Implications
During its third-quarter earnings report in October, Chevron disclosed an upward revision in the budget allocated for the Tengiz project. Initially estimated at $45.2 billion, the budget has witnessed a 4% increase due to a slower-than-anticipated startup phase.
Sources close to the matter revealed an additional $1.5 billion expenditure reserved for project enhancement, highlighting the scale and complexity of the work.
Chevron's Official Statement and Financial Projections
The company’s official statement, released on a recent Thursday, reaffirmed its commitment to the Tengiz expansion initiative. Despite the budgetary adjustments, Chevron asserted that its guidance for the total project cost remains consistent with the figures communicated during its previous earnings calls. The company's financial projections indicate a modest increase of 3-5%, encapsulating the dynamic nature of the project's financial landscape.
Contingency Planning Amid Uncertainty
In response to the unprecedented challenges posed by the COVID-19 pandemic, Chevron disclosed a contingency reserve of $1.9 billion in July 2021. This proactive measure aimed to mitigate schedule uncertainties and ensure the seamless progression of the Tengiz expansion project despite external disruptions. The allocation of contingency funds highlights Chevron's meticulous approach toward risk management and operational resilience.
Project Milestones and Delays: A Comprehensive Overview
The Tengizchevroil venture, renowned as the Future Growth Project, has encountered several milestones and setbacks throughout its trajectory. Originally budgeted at $37 billion, the project has surpassed its initial financial estimates, signaling the magnitude of its scope and technological complexity.
Moreover, the completion timeline has witnessed multiple revisions, with the full startup now scheduled for the second quarter following year.
Stakeholder Dynamics and Partnership Synergies
The Tengizchevroil venture represents a collaborative partnership among Chevron, Exxon Mobil Corporation (XOM - Free Report) and KazMunayGas, the state-owned entity of Kazakhstan. With Chevron holding a 50% stake in the venture, XOM and KazMunayGas maintain ownership shares of 25% and 20%, respectively.
This tripartite alliance highlights the strategic alignment of interests among industry leaders and the significance of international collaboration in driving energy sector advancements.
Conclusion
Chevron's ambitious attempt to boost oil output at Kazakhstan’s Tengiz field stands as a testament to the company's unwavering commitment to innovation and growth. However, the ballooning costs and timeline setbacks surrounding Chevron's Tengiz expansion project present a significant hurdle for the company. With a revised budget of $48.5 billion and a launch pushed back to the second quarter of 2024, CVX faces heightened pressure to ensure the project's success.
Zacks Rank and Key Picks
Currently, CVX and XOM carry a Zacks Rank #3 (Hold) each.
Investors interested in the energy sector might look at some better-ranked stocks like Murphy USA Inc. (MUSA - Free Report) and Archrock, Inc. (AROC - Free Report) , both sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Murphy USA is valued at around $8.63 billion. In the past year, the company’s shares have surged 67.3%.
MUSA markets retail motor fuel products and convenience merchandise, operating retail stores under the brands Murphy USA, Murphy Express and QuickChek.
Archrock is valued at $2.93 billion. The company currently pays a dividend of 66 cents per share, or 3.53%, on an annual basis.
AROC, together with its subsidiaries, works as an energy infrastructure company in the United States. The company operates under two segments — Contract Operations and Aftermarket Services.