A $37bn expansion of the Tengiz oilfield in Kazakhstan has been given the go-ahead by Chevron of the US

Chevron approves $37bn Kazakhstan oilfield expansion. Plan is largest development to be authorised since crude price crash of mid-2014

A $37bn expansion of the Tengiz oilfield in Kazakhstan has been given the go-ahead by Chevron of the USA $36.8bn expansion of the Tengiz oilfield in Kazakhstan, the largest investment by private sector oil companies this decade, has been given the go-ahead by Chevron of the US, bucking the trend of delays and cancellations resulting from the slump in crude prices since mid-2014.

The green light for the plan is a rarity at a time when oil companies worldwide have been slashing capital spending and holding back on new commitments to large developments in particular. The decision to go ahead is a sign of the importance of Kazakhstan to Chevron’s long-term future.

The investment will add 260,000 barrels a day of crude to production at Tengiz. That would increase the output at TCO, the Chevron-led consortium that runs the field, by 44 per cent from its average of 595,000 b/d last year. The expansion is scheduled to deliver oil from 2022.

The industry’s expected spending between 2015 and 2020 has dropped by about $1tn, or 22 per cent, since 2014, according to Wood Mackenzie, the consultancy.

Chevron is cutting its planned capital spending from nearly $42bn in 2013 to a planned $25bn this year. It has several mega-projects coming on stream between 2014 and 2017, including the giant Australian liquefied natural gas plants Gorgon and Wheatstone, and it has set a strategy of shifting towards smaller, more flexible investments.

However, the fact that Tengiz is already in production with facilities in place, rather than a greenfield development, makes the investment more attractive. The project will break even with an oil price at about today’s levels of $50 a barrel, according to people close to two of the companies in the Tengiz consortium.

The economics of the project have also been helped by the global downturn in the industry, which has cut the cost of equipment and contracts with service providers.

Jay Johnson, Chevron’s executive vice-president for oil and gas production, added that the project had “undergone extensive engineering and construction planning reviews”, and was “well timed to take advantage of lower costs of oil industry goods and services”.

Matthew Sagers, senior director of Russia & Caspian Energy at IHS, the consultancy, described Tengiz as a “proven thoroughbred”.

He added: “The project’s economics are not wonderful, but at the same time they’re solid. You don’t need a ridiculously high price to recognise the benefits.”

The TCO consortium is 50 per cent owned by Chevron, 25 per cent by ExxonMobil, 20 per cent by KazMunaiGas, Kazakhstan’s state oil company, and 5 per cent by Lukoil of Russia.

The $36.8bn investment has two elements: the “wellhead pressure management project”, to maintain output from the field through its existing equipment, and the “future growth project” to boost production by injecting gas into the reservoir.

In terms of additional production, the Tengiz expansion is comparable to the large commitments to increased capacity at the Shaybah and Khurais fields in Saudi Arabia made by Saudi Aramco, the national oil company, in 2013.

In terms of the investment by private sector companies, it is larger than any of the other big oil and gas projects approved this decade, including BP’s $28bn expansion of the Shah Deniz gas development in Azerbaijan, and Total and Novatek’s $26.9 Yamal LNG plant in Russia, both given the go-ahead in 2013, John Watson, Chevron’s chief executive, said in a statement the Tengiz expansion project “represents an excellent opportunity for the company?… [it] builds on a record of strong performance at Tengiz and will add value for Chevron and its stockholders”.