Oil and Gas

Chevron commences major deep water GOM production

by Leslie Turk

First oil and natural gas flowing from deepwater Jack/St. Malo project 280 miles south of New Orleans.

Chevron Corporation announced Tuesday that crude oil and natural gas have begun flowing at its $8 billion Jack/St. Malo production platform in the deepwater U.S. Gulf of Mexico.

A key part of Chevron´s upstream portfolio and among the largest fields in the Gulf, Jack and St. Malo were discovered in 2004 and 2003, respectively, and production is expected to ramp up over the next several years to a total daily rate of 94,000 barrels of crude oil and 21 million cubic feet of natural gas. The projects have a planned production life of more than 30 years, with current technologies anticipated to recover in excess of 500 million oil-equivalent barrels. Chevron plans to reach 3.1 million barrels per day by 2017.

“This milestone demonstrates Chevron´s capital stewardship and technology capabilities, featuring a number of advances in technology that simply didn´t exist when the fields were discovered,” Jay Johnson, the company´s upstream senior vice president, said in a prepared release. “These learnings can now be transferred to other deepwater projects in our portfolio.”


Ownership breakdown: Chevron, through its subsidiary, Chevron U.S.A. Inc., has a working interest of 50 percent in the Jack field, with co-owners Statoil (25%) and Maersk Oil (25%). Chevron, through its subsidiaries, Chevron U.S.A. Inc. and Union Oil Company of California, also holds a 51 percent working interest in the St. Malo field, with co-owners Petrobras (25%), Statoil (21.5%), ExxonMobil (1.25%) and Eni (1.25%); and a 40.6 percent ownership interest in the host facility, with co-owners Statoil (27.9%), Petrobras (15%), Maersk Oil (5%), ExxonMobil (10.75%) and Eni (0.75%).


Joining the day-after-Thanksgiving rout of oil stocks, Chevron (NYSE: CVX) took a nosedive last week, falling from $115.11 on Wednesday, Nov. 26, to $108.87 Friday, Nov. 28, after OPEC announced it would leave its production target at 30 million barrels a day — a decision that pushed oil prices below $66 a barrel. Oil has fallen about 38 percent since June, when it was $107 a barrel. Chevron´s stock, however, had inched back up to $111.73 Monday and climbed to as high as $114 before falling back to close at $113.71 Wednesday. It was down to $112 in early afternoon trading Thursday.

Noting the importance of the project being delivered on time and on budget, a Forbes story published immediately after Chevron´s announcement also stresses that the recent slide in oil prices dramatically shifts the Jack and St. Malo fields´ path to profitability:

At $100 a barrel (where oil was in June) Chevron and partners would need to produce roughly 100 million barrels to generate enough cash (after operating expenses) to pay back their capital investment. At today´s $68 per barrel they´ll need more like 150 million barrels to breakeven. So, assuming average production of about 30 million barrels of oil (and equivalent gas) per year, the recent oil price plunge will delay the payback period on Jack/St. Malo by at least 18 months.

Citing Imran Khan, a research analyst with oil consultancy WoodMackenzie, the Forbes story explains that the breakeven price needed to justify incremental investment going forward on completed projects like Jack/St. Malo is as low as $35 per barrel.

Writes Forbes´ Christopher Helman:

Indeed, [Khan] says that some of the world´s most economic oil projects today involve new deepwater fields discovered nearby existing offshore infrastructure. These so-called “tie-backs” can generate that 10% breakeven even at oil prices as low as $30 per barrel. Now that´s some cheap oil.

According to Helman´s analysis, with shale plays less attractive in light of falling prices, it´s Back to the Future for deepwater.

The Jack and St. Malo fields are located within 25 miles of each other; the 160,000-ton platform floats in approximately 7,000 feet of water in the Walker Ridge area, approximately 280 miles south of New Orleans. The fields were co-developed with subsea completions flowing back to a single host, semi-submersible floating production unit located between the fields. Chevron says the facility is the largest of its kind in the Gulf of Mexico and has a production capacity of 170,000 barrels of oil and 42 million cubic feet of natural gas per day, with the potential for future expansion.

“Jack/St. Malo is the result of the collaboration of hundreds of suppliers and contractors and many thousands of people across nine countries over a ten-year period,” Jeff Shellebarger, president, Chevron North America Exploration and Production Company, said in the company´s news release. “This project highlights our long-term commitment to the U.S. Gulf of Mexico, where Chevron is among the top leaseholders. Moreover, we expect Jack/St. Malo will continue to deliver sustained economic and community benefits, including job creation, along the Gulf Coast.”

In its announcement, Chevron said crude oil from the facility will be transported approximately 140 miles to the Green Canyon 19 Platform via the Jack/St. Malo Oil Export Pipeline, and then on to refineries along the Gulf Coast. The pipeline is the first large-diameter, ultra-deepwater pipeline in the Walker Ridge area of the Lower Tertiary trend. Chevron says the combination of extreme water depths, large diameter, high-pressure design, and pipeline structures have set new milestones for the Gulf of Mexico.