Chevron’s $8 Billion Jack St Malo Comes Online

Published at 12:06PM - 04/12/14

Chevron has begun operations at its new St Malo production rig, located in the Gulf of Mexico. The platform has cost over $8 billion in investment, and the owners are keen to see it begin to pay back, even amid a climate of volatile oil prices. The delivery will be a key part of Chevron’s upstream strategy, which aims to hit up to 3.1 million barrels daily by 2017. The oil fields are two of the biggest in the area and were discovered in 2003 and 2004.

The new platform located in the deepwater of Mexico’s Gulf weighs an incredible 160,000 tonnes and floats in water 7,000 feet deep. It is located south of New Orleans, 280 miles away from the shore. The reservoirs that its wells tap into – St Malo and Jack – go up to 26,500 feet underneath sea level. Chevron plans to drill additional wells in time, and at peak the platform is projected to achieve up to 94,000 barrels of oil production daily, as well as natural gas to the tune of twenty-one million cubic feet. Crude oil from the platform will be transported to the Green Canyon 19 Platform, via the St Malo and Jack export pipeline, across 140 miles. It will then travel on to Gulf Coast refineries.

Chevron promised to bring the platform online by the end of 2014, but analysts wondered if the company might pause in the wake of dipping oil prices, which will greatly impact profitability. Oil cost around $100 a barrel in June, which meant that one hundred million barrels would generate sufficient revenues to repay the capital investment. However, at current levels of around $68 per barrel this break-even figure shoots up to around 150 million barrels and increases the payback time by around eighteen months compared to original projections.

 

An Overview Of Chevron’s Jack St Malo Project

 

However, Chevron didn’t build the project with a figure of $100 in their projections. The platform is expected to pump over 500 million oil barrels over 30 years, and it will represent a real cash cow for the energy giant – along with partners Petrobras and Statoil – once the capital investment is repaid.

The president of Chevron’s North America business, Jeff Shellebarger, said that the St Malo and Jack production was the outcome of many hundreds of contractors and suppliers collaborating together across nine countries for a project that lasted over a decade. He added that the project demonstrated the company’s commitment to the area, where Chevron is one of the leading companies holding operating leases, and that it would provide jobs and other sustained community and economic benefits along the coast.

Deepwater is a key market for many oil companies now, as the break-even prices can be economic, especially where new fields are found near existing offshore oil drilling and production facilities. Technological advances are also making it possible for companies to look at potential wells and exploration sites which previously might have been uneconomic to investigate or drill. Deepwater sites are largely unexplored, and analysts believe that the economics look positive, with shale becoming less attractive. Unlike shale oil wells, deepwater wells can produce up to 10,000 bpd for many years, offsetting costs which can rise to as much as $250 million.