Cost blowout at Gorgon project
THE high dollar and extra logistics are to blame for a $US15 billion ($14.4 billion) cost blowout at Australia's biggest natural gas project, Gorgon, says the US energy company driving the project, Chevron.
The chief executive of Chevron, John Watson, said that the high Australian dollar - worth about $US1.04 on Sunday, compared to about 86¢ when Gorgon was given the go-ahead in 2009 - contributed "about a third" of the cost increase.
Speaking to analysts on Saturday, Australian time, Mr Watson said the project also faced "fairly unique" logistics problems moving larger than expected amounts of construction materials to Barrow Island off Western Australia, where it is building a liquefied natural gas plant.
Last month Chevron revealed the expected cost of developing Gorgon, about 130 kilometres off the north-west coast, had risen from $37 billion to $52 billion.
The Gorgon cost blowout has led Chevron's partner in the project, Royal Dutch Shell, to signal it will reconsider further investment in the "overheated" Australian market.
Chevron owns 47.3 per cent of Gorgon. Shell and ExxonMobil each own 25 per cent, with the remainder held by two Japanese energy companies. Mr Watson said Gorgon "was over 55 per cent complete at year-end".
He said Chevron would apply lessons learned at Gorgon to another Australian gas project, Wheatstone, off the Pilbara.
"So, for example, we're working very hard right now on simple things like beds and roads and infrastructure, and that is going quite well at the moment," he said.
"At times we were impacted by weather as we were constructing the beds and other facilities and infrastructure in the early days of Gorgon. There were a number of cyclones that went through the area, and that impacted us."
He said Chevron's "legacy LNG projects in Australia" were among projects that would be supported by $36.7 billion in capital spending set to take place this year.
Mr Watson was speaking after announcing that Chevron's fourth-quarter profit had risen 41 per cent, to $US7.2 billion, compared with the same period in the previous year, driven partly by the sale of its share in the Browse project to Shell.
In a deal announced in August, Chevron swapped its interest in Browse, a gas project off the Kimberley led by Woodside, for Shell's interests in two other fields and $450 million cash.
The deal boosted Chevron's fourth-quarter earnings by $US1.4 billion, its chief financial officer, Patricia Yarrington, said.
Stacey Hudson, an analyst at Raymond James, estimates the exchange was worth 72¢ a share, which would put Chevron's adjusted earnings 8¢ below what analysts had expected but 40¢ higher than the fourth quarter of last year.
Chevron's results were also helped by the sale of the company's Caribbean fuels marketing operations.
Excluding the gain from the Australian asset sale, Chevron's net income rose 14 per cent in the quarter.
Chevron's production rose to 2.67 million barrels of oil and gas per day for the quarter, up slightly from a year ago but up substantially from the 2.5 million in the third quarter of last year.
Production has been hurt by the temporary closure of its Brazilian offshore project in the Frade field since oil was found to be seeping from the field in November 2011 and again in March last year.