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Bloomberg: Chevron’s Tahiti Oil Project Delayed by Faulty Parts (Update5)

By Joe Carroll

June 28 (Bloomberg) — Chevron Corp., the second-largest U.S. energy company, said its $3.5 billion Tahiti oil project in the Gulf of Mexico will be delayed after shackles that connect the production platform to the seafloor were found to be faulty.

New shackles are being ordered to ensure the platform is safe and reliable, Mickey Driver, a spokesman for San Ramon, California-based Chevron, said today. He said it’s not known how long it will take to finish the project, which had been scheduled to begin pumping oil in mid-2008.

The Tahiti field would have accounted for 38 percent of Chevron’s new output next year, said Ryan Todd, an analyst at Deutsche Bank Securities Inc. Another deepwater development in the Gulf, the $3 billion Jack project, was delayed when Chevron said this month it would postpone drilling because of a rig shortage. Tahiti is the company’s most costly U.S. oil project.

“This is a big hit,” said Todd, who rates Chevron shares at “sell” and doesn’t own any. “Tahiti was incredibly important to Chevron’s growth profile. Certainly, this is a big negative for their ’08 story.”

Tahiti, discovered in 2002, is one of five major fields that Chevron was expected to tap next year to get its oil and natural-gas production growing, said Philip Weiss, an analyst at Argus Research Corp. in New York. The company’s production has dropped an average of 1 percent annually in the past five years.

Faulty Equipment

“If you’re going to put a $3.5 billion project of that magnitude in the middle of the Gulf of Mexico, you want everything just right,” said Driver, the spokesman. “We don’t know at this point how long all of this is going to take.”

Initial tests on the Tahiti shackles by a subcontractor working for Paris-based Technip SA showed no defects, Driver said. Additional tests were ordered after shackles on a project for another oil company were found to be flawed. Driver said he didn’t know the name or owner of the other platform.

The latest tests, conducted in the past week, showed faults in the shackles that hook the platform to mooring lines and connect the lines to anchors on the seafloor, Driver said.

“We’re always waiting to see when Chevron’s going to come through on their production promises,” Todd said. “For years, 2007 was going to be the big growth year, then it became ’08. I don’t think any of us were expecting this.”

Statoil, Total

Technip, Europe’s second-largest oilfield contractor, built the floating platform and mooring system for Chevron at a shipyard in Finland, Driver said. The equipment arrived this month in Ingleside, Texas, where a five-story topside that includes a helipad, sleeping quarters and a galley is being built, he said.

“It’s just a metallic piece,” Laurence Bricq, a Technip spokeswoman in Paris, said of the faulty shackles. “There’s no problem with the engineering, design or anything else.”

Bricq said she didn’t know how long it would take to replace the parts, which she described as standard equipment in the offshore oil industry. She said she couldn’t identify the subcontractor responsible for the shackles.

Tahiti, which holds as much as 500 million barrels of crude, is operated and 58 percent owned by Chevron. Statoil ASA, Norway’s largest oil company, owns a 25 percent stake. France’s Total SA owns 17 percent.

Statoil’s Spree

Oil from Tahiti would have been the first fruit of Statoil’s two-year, $3.6 billion buying spree in the Gulf of Mexico. The company has been shifting investment to the Gulf and Canada to make up for declining production in the North Sea.

Producers are pushing into deeper seas to find untapped fields as opportunities for new discoveries decrease on land and in coastal waters. Technological advances that enable drillers to control high pressure oil flows from reservoirs five miles beneath the seafloor are giving companies access to oil they couldn’t pump 10 years ago.

The Tahiti field is 140 miles (225 kilometers) from the Louisiana coast and 4,300 feet below the surface in the Gulf’s Green Canyon formation. Green Canyon also is home to BP Plc’s Mad Dog and Anadarko Petroleum Corp.’s Genghis Khan fields.

Oil production from deepwater Gulf wells, or those in seas of at least 1,000 feet, is expected to jump 67 percent by 2010 to 1.5 million barrels a day, the Interior Department’s Minerals Management Service said in a report last month.

Shares of Chevron rose 29 cents to $84.18 in New York Stock Exchange composite trading. The stock has climbed 14 percent this year.

Exxon Mobil Corp., based in Irving, Texas, is the world’s largest oil company.

To contact the reporter on this story: Joe Carroll in Chicago at [email protected]
Last Updated: June 28, 2007 16:53 EDT

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