June 23, 2009 / 2:48 PM / 10 years ago

UPDATE 3-Chevron begins production at Frade field in Brazil

* Expects peak output of 90,000 barrels per day in 2011

* Crude to be exported, natural gas for use in Brazil

* Adds to bullish view of Chevron production outlook (Adds details on Frade, Tombua Landana and Piceance Basin, bylines, SAN FRANCISCO to dateline)

By Brian Ellsworth and Braden Reddall

RIO DE JANEIRO/SAN FRANCISCO, June 23 (Reuters) - Chevron Corp (CVX.N) announced on Tuesday a slightly earlier start of oil output at the Frade field, a $3 billion project off Brazil’s coast expected to produce 90,000 barrels per day by 2011.

Crude oil from Frade, located some 230 miles (370 km) from Rio de Janeiro in 3,700 feet (1,128 meters) of water, will be shipped to other markets, while the natural gas is slated for use in Brazil.

Frade’s start-up, which had been due in the second half of 2009, will only add to a bullish view of Chevron’s production outlook.

The company reported first-quarter output of 2.66 million barrels per day, versus its overall 2009 estimate of 2.63 million bpd, and it has since announced first oil at its Tahiti field in the Gulf of Mexico.

“Look for a 2009 volume-target raise,” Deutsche Bank analyst Paul Sankey wrote in a research note on Tuesday, after meeting with Chevron’s management. Sankey has a “hold” rating on the stock due to the bank’s bearish view of oil prices.

Shares of Chevron rose 0.3 percent to $65.96, helped by a 2 percent rise in oil prices CLc1.

Chevron said it expects about 30,000 bpd from Frade in its initial phase in 2009. Overall, it estimates there are 200 million to 300 million barrels of recoverable oil there.

The San Ramon, California-based company holds a 52 percent operating interest, while state-run Petrobras (PETR4.SA) and Japanese partners INPEX, Sojitz and JOGMEC hold the rest.

The project will help Chevron expand in “one of the world’s most promising deepwater oil and gas regions,” George Kirkland, Chevron’s executive vice president for upstream and gas, said in a statement.

Frade is not part of Brazil’s sub-salt reserves, which aremassive oil fields found deep beneath a layer of salt that have drawn investor interest and that analysts say could turn the South American nation into a major oil exporter.

MORE PROJECTS IN PIPELINE

Chevron anticipates a base business decline of 180,000 bpd this year, and has recently had to shut in 100,000 bpd of production in Nigeria’s Delta state due to violence.

But it will see more production from its deepwater Agbami project off Nigeria, which was up to 170,000 bpd in March from 100,000 bpd late last year.

Also in western Africa, production is set to start this year at the Tombua Landana project in Angola, in which operator Chevron holds 31 percent and Total (TOTF.PA), ENI (ENI.MI) and state operator Sonangol each hold 20 percent.

Closer to home, Chevron said on Tuesday it still expects to start natural gas production in Colorado’s Piceance Basin this year, despite a slowdown in drilling there due to weak prices.

On Monday, larger rival Exxon Mobil Corp (XOM.N) unveiled new field processing capacity for Piceance natural gas. (Reporting by Brian Ellsworth in Rio de Janeiro and Braden Reddall in San Francisco; Editing by Walter Bagley)

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