March 14, 2011 / 2:28 PM / in 8 years

UPDATE 4-Chevron eyes Aussie gas, tightens refinery squeeze

* Sees persistent weak refining margins, cutting costs

* Expects to sell fuel in fewer than 50 countries by 2012

* Targets 3.3 mln bpd production by 2017, 2.79 mln in 2011

* 2 big Australia gas projects to net Chevron 420,000 bpd

* Focus on natural gas a contrast to Exxon (Adds cost of projects paragraphs 13-14, closing share price)

By Matt Daily and Braden Reddall

NEW YORK/SAN FRANCISCO, March 14 (Reuters) - Chevron Corp (CVX.N) is investing heavily in two huge Australian natural gas projects to ignite growth for the second-largest U.S. oil company, even as it carves costs out of its refining division.

Mike Wirth, who runs the downstream arm, expects margins to stay soft this year, and told the company’s yearly session with analysts that refining costs would be $700 million lower next year than 2008, with $500 million of that already achieved.

In a restructuring unveiled a year ago, Chevron will have shed 2,800 staff by the end of 2011. The refining and marketing arm has pulled out of 62 countries, and Wirth aims to be in fewer than 50 countries by next year, down from 81 currently.

Yet John Watson, now in his second year as chief executive, said after the meeting on Monday that he does not expect to sell any more refineries, having just completed the year-long process of selling one in Wales last week. [ID:nN11130249]

Watson also said he would meet with U.S. Interior Secretary Ken Salazar on Wednesday to discuss drilling in the Gulf of Mexico, where two weeks ago Salazar’s department approved the first deepwater permit since last year’s spill. [ID:nN28278795]

“I hope what I hear is that the conditions that (the regulator) has outlined are now static, that they’re not going to change again. The difficulty in submitting permits has been that the bar has continued to move,” Watson told reporters.


Chevron is investing 20 percent more this year, at $26 billion, with $2.9 billion going to downstream. [ID:nN09222898]

The $37 billion Gorgon liquefied natural gas (LNG) project, which Chevron is building with Exxon Mobil Corp (XOM.N) and Royal Dutch Shell Plc (RDSa.L), is slated to start up in 2014, and eventually produce the oil-equivalent of 450,000 bpd.

The final investment decision at Wheatstone, a project 60 miles (100 km) to the south of Gorgon on the west coast of Australia that will produce up to 260,000 bpd, will be made in the second half of this year, ahead of a 2016 start-up.

After sharing with partners, the two projects would ultimately add a total of 420,000 bpd to Chevron production.

The LNG contracts with Asian buyers are linked to oil prices, and while 40 percent of Chevron’s 2011 budget is for natural gas, nearly half that will be on gas near oil parity.

The gas focus contrasts with larger rival Exxon, which last week sought to remind analysts how much oil it will be producing despite last year’s XTO acquisition. [ID:nN09245829]

Chevron attached cost figures to two big gas projects: $4.3 billion for Vietnam Block B, due for sign-off this year, and $4.7 billion for China’s Chuandongbei, starting up in 2012.

Also, in follow-on oil projects in 2011, it will spend $2.3 billion on a new phase of Tahiti in the Gulf of Mexico and $1.9 billion on Nigeria’s Agbami 2, where it will drill 10 wells.

Chevron sees overall 2011 oil-equivalent production at 2.79 million barrels per day, up 1 percent. Growth is set to pick up to between 4 percent and 5 percent after 2014, once Australian gas starts flowing, with a 3.3 million bpd target for 2017.

The company’s 2 percent production growth in 2010 was helped by a base business decline of just 3.5 percent — below the 5 percent to 6 percent that the company had expected.

Following its recent purchase of Atlas Energy, Chevron plans to drill 70 shale gas wells in the Marcellus region this year and expects output of 115 million cubic feet per day.

Chevron shares rose 0.9 percent to close at $100.80 on the New York Stock Exchange. (Reporting by Matt Daily in New York and Braden Reddall in San Francisco; Editing by Derek Caney, Tim Dobbyn, Dave Zimmerman and Richard Chang)

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