Chevron cancels Buckskin-Moccasin

January 29, 2016

In Chevron's Q4 2015 earnings conference call today, the company announced it was cancelling the deepwater Gulf of Mexico project Buckskin-Moccasin, instead choosing to advance other projects, particularly onshore in the Permian basin.

Chevron's Chairman and CEO John Watson told a conference call held today (29 January) that the current market definitely affected the decision. "Right now, the costs in the deepwater haven't come down quite as fast as they have onshore," he said. "We obviously have seen some rig rate reductions but in generation as we get to deeper and deeper water, some projects are challenged."

Watson said the company was hit with a $500 million charge after it wrote the project off. Ultimately, after assessing several alternative developments, including the possibility of a hub or a tieback development, Chevron pulled the plug.

"I won't say that that project couldn't have gone forward and that it wouldn't meet minimum thresholds depending upon your forward view of prices," Watson said. "But, relative to our alternatives, we felt that for the foreseeable future, we've got better places to put our money. And so we made the very difficult decision to not go forward with that project."

Last February, Chevron chose INTECSEA to perform FEED studies on the project.

Also announced today, the California-based company reported a loss of $588 million in Q4, compared with earnings of $3.5 billion in Q4 2014. Its full-year 2015 earnings were $4.6 billion, compared with $19.2 billion in 2014.

Jack/St. Malo at Ingleside. Image courtesy of Chevron.

Decreased earnings for the company reflected nearly a 50% year-on-year decline in crude oil prices, Watson said.

“We’re taking significant action to improve earnings and cash flow in this low price environment,” Watson said. “Operating expenses and capital spending were reduced $9 billion in 2015 from 2014, and I expect similarly large reductions again in 2016. In addition, asset sales proceeds were $6 billion in 2015, with additional sales planned for 2016 and 2017.”

Its US upstream operations suffered a $1.95 billion loss in Q4, compared to earnings of $432 million in last year’s period, which the company said was due to lower crude oil realizations, higher depreciation expenses, higher exploration expenses and lower gains on asset sales, partially offset by higher crude oil production. The increase in depreciation and exploration expenses was primarily due to impairments and project cancellations.

Although international upstream operations saw earnings in Q4, they were only a fraction compared to Q4 2014. Earnings were $593 million in Q4 2015, compared with $2.24 billion a year earlier. The decrease, Chevron said, was due to lower crude oil and natural gas realizations, and lower gains on asset sales. Partially offsetting these effects were lower depreciation, operating, tax and exploration expenses, and higher crude oil production. Foreign currency effects increased earnings by $91 million in Q4 2015, compared with an increase of $453 million a year earlier.

Worldwide net oil-equivalent production increased in Q4 to 2.67 MMb/d, compared 2.58 MMb/d in the 2014 period. Full year 2015 net oil-equivalent production was 2.62 MMb/d, representing a slight increase of 2% from 2014.

US net oil-equivalent production saw a 7% jump to 719,000 b/d in Q4 2015, compared to Q4 2014’s 46,000 b/d. According to Chevron, production increases were due to project ramp-ups in the Gulf of Mexico and onshore assets, and were partially offset by normal field declines and the effect of asset sales.

During the year, Chevron advanced its upstream major capital projects that included first production from two deepwater projects in Africa, in addition to ramping up production from Jack/St. Malo project in the deepwater Gulf of Mexico.

In Australia, the company made progress with its Gorgon LNG project, with LNG expected to begin production within the next few weeks, Watson said.

“Successful completion and start-up of these and other major capital projects will translate into significantly lower capital spending, higher production and growing cash generation in the months ahead,” he said.

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