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Big Oil Drowning in Extremely High Project Costs

Screen Shot 2014-02-18 at 18.34.00Extracts from a Matt DiLallo article published 17 March 2014 by The Motley Fool

Big oil has a big problem. Cost overruns around the globe are calling into question the commercial viability of many megaprojects. When Gorgon was approved, the project was expected to cost about $37 billion. However, late last year, Chevron raised the estimate to as high as $54 billion. That’s 46% higher than initially expected, and it might not be the end of the cost overruns. The project, in which both ExxonMobil and Royal Dutch Shell own a 25% stake, could end up costing the partners close to $60 billion when all is said and done. …big oil is facing big cost overruns in deepwater projects. The poster child for that is the Kashagan oilfield in the Caspian Sea. Partners that include Royal Dutch Shell and ExxonMobil spent $50 billion to develop the field, which was beset with delays, cost overruns, and technical difficulties. Worse yet, initial production volumes didn’t live up to expectations, and more recently, a new problem has surfaced, which is why the field is currently sitting idle.

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