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Chevron gives Tengiz Expansion in Kazakhstan the green-light, taking advantage of lower drilling prices

Chevron Corporation (ticker: CVX) announced the first oil and gas investment to exceed $10 billion in 2016 with its decision to go ahead with an expansion on the Tengiz project in Kazakhstan. According to the company’s press release, Chevron and its partners plan to invest roughly $36.8 billion to increase production by about 260 MBOPD.

The cost breakdown for the Future Growth and Wellhead Pressure Management Project is expected to be $27.1 billion for facilities, $3.5 billion for wells, and $6.2 billion for contingency and escalation.

The project will bring the total daily production of Tengizchevroil (TCO), Chevron’s 50%-owned affiliate, to approximately 1 million barrels of oil equivalent. TCO’s other owners include ExxonMobil (ticker: XOM, 25% interest), Kazakhstan’s state-owned Kazmunaygaz (20% interest), and LukArco (5% interest).

The Tengiz Field is the world’s deepest operating super-giant oil field, with the top of the reservoir at about 12,000 feet below ground. Net Chevron share daily production from these fields in 2015 averaged 257 MBO, 348 Mcf of natural gas and 21,000 barrels of natural gas liquids.

Chevron is Kazakhstan’s largest private oil producer, holding important stakes in the nation’s two biggest oil-producing projects—the Tengiz and Karachaganak fields.  Chevron is also the largest private shareholder in the Caspian Pipeline Consortium, which operates a 935-mile (1,505-km) crude oil export pipeline from the Tengiz Field in Kazakhstan to tanker-loading facilities at Novorossiysk on the Russian coast of the Black Sea. The pipeline provides the key export route for crude oil from TCO and Karachaganak.

“It’s a terrific time to be making this sort of investment,” Todd Levy, Chevron’s president for exploration and production in Europe, Eurasia and the Middle East, told The Wall Street Journal. The partnership will be able to take full advantage of lower drilling costs that have accompanied the fall in oil prices since the end of 2014.

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