Insight
Megaproject problems: Chevron faces US$10 billion cost overrun and delays at Kazakhstan’s Tengiz expansion
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Report summary
The Chevron-led Tengizchevroil (TCO) expansion in Kazakhstan will cost up to US$46.5 billion – about 25% more than its US$36.8 billion budget at FID in 2016. The onshore project – known as Future Growth Project and Wellhead Pressure Management Project (FGP-WPMP) – also has a revised schedule, with FGP delayed to 2023, following WPMP start-up in late 2022. This news is an immense disappointment to Chevron and its partners. It comes despite the global industry’s improved execution performance since 2014. Chevron had intended FGP-WPMP to boost its project delivery reputation, after past challenges with Australian LNG and other assets. For Kazakhstan, this is another bitter pill to swallow. It follows immediately after the Majors opted to exit the country’s largest greenfield project, the offshore Kalamkas More-Khazar oil development. The focus must shift to smaller-scale, lower-cost and shorter-cycle phases to exploit the world-class resources at the country’s largest upstream assets.
Table of contents
- Executive summary
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What has gone wrong?
- Costs – up to US$10 billion of overruns
- Schedule – FGP start-up pushed back to 2023
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FGP-WPMP returns take another hit
- A sub-10% rate of return, even if world-class cash flow awaits
- Capital expenditure will decline from 2018-19 peak, but risks persist
- Long-term production outlook is largely unchanged
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What could boost the FGP-WPMP outlook?
- A future contract extension grows ever more vital
- Sustaining operational reliability could unlock more barrels
- Some project delivery successes, amid the disappointing news
- Drilling programme has exceeded expectations
- Site productivity has ramped up in 2018-19
- Global logistics system has worked well
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Another project delivery misstep for Chevron and the regional industry
- History repeating, despite lessons learned
- Strategic choices to make in Chevron’s portfolio
- TCO remains a top-tier asset for all partners
- The latest reality check for Kazakhstan’s competitiveness
- Kazakhstan’s other main operators are adapting their plans
Tables and charts
This report includes the following images and tables:
- Tengizchevroil expansion (FGP-WPMP) cost estimate – then and now
- FGP-WPMP project economics (base case)
- FGP-WPMP IRR – sensitivity to long-term oil price
- Tengizchevroil expansion (FGP-WPMP) incremental cash flow (gross basis)
- Tengizchevroil expansion (FGP-WPMP) capital expenditure by year
- Tengizchevroil oil production
- Chevron – top upstream assets/plays by NPV10
- ExxonMobil – top upstream assets/plays by NPV10
- Caspian and Central Asia – major capital project track record
What's included
This report contains:
