Point of View - International gas projects are focus for ChevronTexaco

The international natural gas business today looks like the oil business did 50 years ago. And this is especially true in Africa, where multinational companies are still in the early stages of building the links between gas reserves and customers, according to George Kirkland, president of ChevronTexaco Overseas Petroleum (CTOP), the arm of ChevronTexaco Corp. that handles upstream operations outside North America.

"For years, Africa's natural gas has been a resource looking for a market. Now this gas is becoming a bonus."

Kirkland told a Corporate Council on Africa Houston investment conference in November that ChevronTexaco and its partners will invest more than $20 billion over the next 5 years in the region.

George Kirkland, president, ChevronTexaco Overseas Petroleum

"The benefits of natural gas go beyond new jobs and capital. Natural gas offers Africa environmental gains, greater industrial diversity, more prospects for regional cooperation, and new trading opportunities and relationships with the rest of the world," he said.

Developing the gas will take time, and "there will be growing pains along the way," he said. "But the potential economic, environmental, and social gains will make the struggle worth it."

Africa key target

Kirkland said the continent is a key investment center for the company now and for the long term.

"We invest looking 20, 30, even 60 years down the road; it's a long-term relationship," he said.

CTOP's new capital expenditure program for 2004 will include "significant" spending to build up its international natural gas resource base; Nigeria and Angola will figure prominently. Ongoing investment is slated for existing nearshore producing fields, in the Sanha condensate project, and in deepwater developments at Agbami and Benguela-Belize.

Much of the offshore gas will be converted to LNG and exported. Nigeria, whose gas reserves are largely located offshore, now has the world's fastest-growing LNG business, Kirkland said.

By 2006, Nigeria's Bonny LNG project, with its six processing trains, will place Nigeria third among the world's LNG exporters, he noted.

And demand for natural gas is spurring other projects in Africa. These include transregional pipelines to what ChevronTexaco describes as the world's first commercial-scale, fuels-only, gas-to-liquids plant. The Escravos GTL plant, a joint venture with Nigerian National Petroleum Corp., will produce ultraclean diesel fuels from Nigerian natural gas that otherwise would be flared.

ChevronTexaco also is joint venturing with South African-based energy and petrochemical group Sasol Ltd. to provide technology and operational expertise to the project. Sasol is providing risk-based financing representing half of the project costs.

And the company is eyeing an investment in a $550 million proposed West Africa Gas Pipeline that would ship formerly flared Nigerian gas more than 600 miles to Ghana, Togo, and Benin. As potential gas suppliers for the pipeline, ChevronTexaco and Royal Dutch/Shell Group are urging the World Bank to give Ghana financial guarantees to reduce commercial risk. Gas from the pipeline would supply new and renovated power plants in the region.

Kirkland declined to predict when or if the World Bank will offer the kind of financial backing that helped seal the deal for rival ExxonMobil Corp. to proceed with the Chad-Cameroon oil project. But he said that discussions are "ongoing."

The bank is under increasing pressure from environmental advocacy groups to favor gas instead of oil projects because they are seen as more environmentally friendly. But as yet there is no official policy from the bank or its funders to reject oil-based development.

US divestments

ChevronTexaco's Africa holdings are an integral part of the multinational parent's increasingly international focus. But Kirkland stressed there is no specific connection between the decision to sell certain nonstrategic US upstream assets and current or future investment decisions affecting the company's international portfolio.

"The company has evaluated and continues to evaluate its worldwide asset portfolio to determine whether assets are a good fit with our strategic and financial objectives," he said. "These decisions are revisited on an ongoing basis. Looking forward, we anticipate that the international upstream portfolio will grow as a proportion of total corporate assets."

ChevronTexaco currently is the biggest producer of US oil; it recently announced it is selling more than 60% of the company's total US properties, but that amounts to only 5% of production. Most of the properties are nonoperated joint ventures and royalty-only interests.

Analysts say the company will use the proceeds either to reduce debt or to invest in larger and lower-cost ventures; Wall Street's expectation is that the sale will pay for overseas plays where returns on capital are historically higher.

In 2004, the upstream portion of ChevronTexaco's global gas-related investments is expected to be $400 million, out of a total of $500 million. Along with Nigeria and Angola projects, there will be further development of the Gorgon natural gas resource off Western Australia and expansion of Australia North West Shelf LNG capacity; Kirkland called Gorgon "a big moneymaker."

In the US and Mexico, the company has proposed two offshore LNG import and regasification terminals, one recently permitted (Port Pelican in the Gulf of Mexico) and the other with permits aggressively being sought (Baja California, Mexico).

Overall, parent ChevronTexaco plans an $8.5 billion capital and exploratory spending program for 2004, which includes $1.8 billion for its share of affiliate expenditures. About 75% of that total budget is targeted for upstream investment in exploration, production, and global gas-related projects; $4.5 billion is earmarked for upstream projects outside North America.

Kirkland predicted that ChevronTexaco's non-North American spending will stay near that level over the next 5 years.

Outside of Africa, the company continues to develop its Kazakhstan holdings; this includes a second-generation sour gas injection project at giant Tengiz oil field. When that expansion comes online in 2006, production capacity is expected to increase to as much as 500,000 b/d from 280,000 b/d today.

In Venezuela, the company views the political climate as relatively stable and is planning further development of the integrated heavy oil megaproject on the Hamaca block in the Orinoco oil belt, along with an associated extra-heavy crude oil upgrading facility that is expected to reach full production in 2004.

And what about Iraq?

"Time will tell," he said. "Under the right conditions and the right security, but now is not the time."

In the meantime, the horizon is nearly limitless, according to Kirkland.

"Where we can play, we will," he said. And in the year ahead, expanding an international gas market will be the name of the game.

Career highlights

George L. Kirkland is a vice-president of ChevronTexaco Corp. and president of ChevronTexaco Overseas Petroleum, responsible for managing ChevronTexaco's exploration and production activities outside North America. He has been in his current position for 2 years. Previously, he was president of North America upstream for ChevronTexaco, a position he assumed Oct. 9, 2001, following the merger of Chevron Corp. and Texaco Inc.