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Bloomberg: Chevron, Exxon, Shell `Committed’ to Gorgon Project (Update1)

By Dinakar Sethuraman

Aug. 17 (Bloomberg) — Chevron Corp. said the company and its partners Exxon Mobil Corp. and Royal Dutch Shell Plc are “committed” to Australia’s Gorgon liquefied natural gas project.

The three companies agree “on the way forward,” Chevron spokesman Cameron van Ast said today. He was responding to reports citing Exxon Mobil Chief Executive Officer Rex Tillerson as saying the project can’t proceed because of escalating costs.

Credit Suisse analyst Mark Flannery yesterday cited Tillerson as saying that all partners agree the project can’t continue at current costs. Tillerson, who held a 90-minute meeting with analysts in New York on Aug. 15, also said that the LNG plant may be moved to contain costs, Flannery said in his note to clients.

“Barrow Island is still the location for the Gorgon LNG plant,” Chevron’s Van Ast said by telephone from Perth. Chevron is the operator of the Gorgon LNG plant, with a 50 percent stake in the project. Exxon and Shell each own 25 percent.

Exxon Mobil dismissed the Credit Suisse report. “The Credit Suisse report includes inaccuracies and speculation on which we cannot comment,” Gantt Walton, a spokesman at Exxon Mobil’s Irving, Texas, headquarters, said in an e-mailed statement.

Rejected Estimates

Chevron Chief Executive Officer David O’Reilly in March said Gorgon needed to be reevaluated to determine if it could still make a profit. He discarded previous cost estimates for Gorgon, the company’s most expensive development, and 10 other projects previously tabbed at $45.9 billion.

The cost of the project, which seeks to tap gas from the Gorgon and Jansz fields off the northwestern Australian coast, will probably rival Shell’s Sakhalin-2 LNG project in eastern Russia at about $20 billion, Bernard Picchi, an analyst at Wall Street Access, said in a June 26 report.

Barrow Island lies about 60 kilometers (37 miles) off the northwestern Australian coast and was declared a nature reserve in 1910 to preserve its unique native wildlife. Since the 1950s oil drilling has been permitted. Chevron has yet to receive final environmental approvals for its LNG project.

Van Ast declined to say when Chevron would secure environmental and other regulatory approvals before the partners take an investment decision.

“All large capital projects are confronted with an over- heated global construction market,” Van Ast said in a separate e-mailed statement. “It is not appropriate to comment on costs at this stage.”

To contact the reporter on this story: Dinakar Sethuraman in Singapore at [email protected]

Last Updated: August 17, 2007 10:45 EDT

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