The American oil corporation Chevron plans to extend the contract for developing the Tengiz field, which expires in 2033. The company has already begun negotiations with the Kazakh government and is expected to resolve the issue within the next three years. This became clear from an interview with Chevron CEO Mike Wirth with Bloomberg.
“Our concession is valid for another eight years. (...) We have begun working with the government to discuss its extension. I want to complete this myself, rather than pass it on to someone else,” Mike Wirth said.
If so, Wirth is likely planning to stay on for another three years. By that time, he will be 68 years old and will have been in this position for ten years. The board of directors has already waived his mandatory retirement age of 65, and Virt appears to have the support of key shareholders to continue working, notes Bloomberg columnist Javier Blas.
According to him, Mike Wirth now has three priority tasks: to complete the restructuring and rebuilding of Chevron's corporate culture; to integrate the $53 billion oil and gas company Hess into the corporation's structure; and to extend the concession for the development of Tengiz.
He believes that with the acquisition of Hess and the expansion of Tengiz, Chevron is confidently turning into a money-making machine.
In July this year, Chevron completed a $60 billion deal (company value + debt) to acquire Hess after an arbitration court in Paris rejected claims by ExxonMobil and China's CNOOC, which believed they had priority rights to purchase Hess's stake in the Stabroek offshore block in Guyana. Chevron and Hess argued that the preemptive right did not apply to the sale of the entire company.
ExxonMobil is the operator of the Stabroek offshore block development project. It owns a 45% stake in the consortium that discovered the field in 2015, with CNOOC holding 25% and Hess 30%.
The Stabroek block is a series of oil fields off the coast of Guyana. Its reserves are estimated at 11 billion barrels of oil, which is worth nearly $1 trillion at current prices.
Chevron is preparing to implement a more centralized structure that integrates Hess. The next step is the already begun 20% reduction in personnel worldwide, which will be completed in 2026. But the most difficult thing is changing the corporate culture, Blas believes.
In his opinion, Chevron has long been something of an exception among oil giants with strict standards: “very polite and willing to cooperate.” “Often, your strengths can have a downside,” says Virt, who wants the company to become more aggressive, but not more hostile. “We need to compete actively,” he notes.
Making a company more efficient without sacrificing its values is no easy task: corporate culture is shaped over decades, not years or quarters. Virt may start the process, but I doubt he will see it through to the end, the journalist writes. In his opinion, the risk is that the company will get bogged down in implementing a new culture developed by external consultants, instead of changing its working methods. Nevertheless, the main thing for shareholders is results, and Chevron's results are good.
Production in the Permian Basin in the US reached 1 million barrels per day (bpd) ahead of schedule, allowing the company to transition from a phase of heavy capital investment to a lower-cost production regime. Between 2011 and 2014, Chevron generated an average of $3.9 billion in free cash flow annually, with an average oil price of over $100 per barrel. In 2024, similar figures had already increased to $15 billion, despite Brent trading at $80. This year, experts expect the company to receive about $17 billion in free cash.
Over the past year, Chevron's shares have risen 13%. They are now trading on the stock exchange at almost $160 per share. The company's current market capitalization is estimated at no less than $327 billion.
First-come, first-served
In addition to a 50% stake in Tengizchevroil LLP (TCO), Chevron also owns an 18% stake in the Karachaganak field development project. The American company was one of the first foreign investors to come to Kazakhstan after the collapse of the USSR and the country's independence.
Initially, the company negotiated with the Soviet authorities regarding Tengiz. In 1988, the Ministry of Oil and Gas Industry and Chevron signed a memorandum of understanding to establish a joint venture, Sovchevoyl, to develop the Royal field, without the participation of the republic. In June 1990, a protocol was signed between Chevron and the Tengizneftegaz production association. But then-President Nursultan Nazarbayev insisted that Tengiz be developed only by Kazakhstan and Chevron. He met with the company's management and stated that they needed to maintain direct contact with Almaty if they wanted to work in Kazakhstan. Nazarbayev then met with then-US President George H. W. Bush and agreed with him to support this approach to the Tengiz project.
The agreement to establish the Tengizchevroil joint venture was signed on April 6, 1993. At that time, oil production at the field amounted to only 1.5 million tons per year. Initially, the company focused its efforts on optimizing production processes and eliminating technological problems at existing facilities. The first investments went into modernizing existing installations. And in 1997, the operator completed the “Bottleneck Expansion” project and brought annual oil production to 7 million tons.
Over more than 30 years, the company has carried out three stages of production expansion at Tengiz, resulting in oil production increasing almost 27-fold.
Today, TCO is the largest taxpayer in the republic. The company's website reports that from 1993 to 2024, its direct financial payments to Kazakhstan exceeded $201 billion. This amount includes salaries for Kazakhstani project employees, purchases of goods and services from domestic producers and suppliers, payments to state-owned enterprises, dividend payments to KMG, as well as taxes and royalties transferred to the budget. According to the company's financial report, in 2024, with revenues of nearly $19 billion and net income of over $2.1 billion, Tengizchevroil paid more than 3 trillion tenge, or $6.5 billion, to the Kazakh state treasury.
Chevron's total revenue last year was about $202.8 billion, and net profit was $17.6 billion, according to the corporation's report. At the same time, TCO's sales revenue amounted to $7.2 billion. Future cash flows from the Tengiz operator's production at the end of last year were estimated at more than $65.2 billion.
If in 2024 the corporation's total crude oil production amounted to 1.56 million bpd, then 17% of it, or more than 263,000 bpd, came from Tengiz. And with the completion of the PBR, this share will grow to 28% or 435,000 bpd. In addition to Kazakhstan, the American company produces oil in 16 other countries.
Furthermore, the cost of production at TCO is one of the lowest among all the company's operating assets, averaging $5.44 per barrel of oil equivalent (boe) in 2024, lower only than Australia's $3.37 per barrel. The corresponding figure in the US is $9.41, in other countries in the Americas - $14.28, in Africa - $18.07, in Asia - $6.80, and in Europe - $16.43 per barrel of oil equivalent.
At the same time, the average selling price of Tengiz oil in 2024 was $67.02 per barrel, while raw materials from other fields were sold at prices ranging from $70 to $77.47 per barrel.
As of December 31, 2024, 41% of Chevron's net proven reserves in oil equivalent were in the United States, 16% in Australia, and 13% in Kazakhstan.
Earlier, Clay Neff, who is responsible for Chevron's exploration and production, told Reuters that TCO will receive $4 billion in free cash flow in 2025 and $5 billion next year at an average Brent price of $60 per barrel.
“This project (PBR) allows us not only to increase production today, but also to extend the life of the field in the future,” Neff said.
What will the government require?
The Kazakh Ministry of Energy responded to questions about extending the contract with Chevron by saying that “work in this area is continuing and is being carried out within the framework of the state's overall strategy and policy.”
"We attach great importance to a high-quality and balanced approach to making further decisions to ensure compliance with both existing contractual obligations and the long-term interests of the country. At the same time, we note that, given the confidential nature of the agreements and the content of the factors under discussion that influence decision-making on the issue, it is not possible to disclose any information before an official position has been formulated," the ministry said.
During a recent visit to the United States, President Kassym-Jomart Tokayev met with Mike Virt on September 22. According to the Akorda press service, Chevron has invested a total of about $55 billion in Kazakhstan, and currently about 25% of the companies' total production volume comes from Kazakhstan. During the meeting, the parties discussed the implementation of the future Tengiz expansion project, the prospects for gas production and processing at Karachaganak, as well as the development of hydrocarbon supply routes to world markets, including via the Middle Corridor.
It should be recalled that in January this year, Tokayev instructed the government to “intensify negotiations on the extension of PSA contracts, possibly on updated terms that are more favorable for our country.”
Later, then-Energy Minister Almasadam Satkaliev announced that consultations and negotiations were planned with the participants in the Tengiz project—Chevron (50%), ExxonMobil (25%), and Lukoil (5%); that the government would first draw up a list of its demands, one of which might be an increase in Kazakhstan's share in the project. The Kazakh side may also demand improved contract terms and a change of project operators.
The subsoil use contract was signed on April 2, 1993, and expires on April 2, 2033.
The company is now, so to speak, at peak production. This year, it completed its future expansion project (FEP) and is now capable of producing 40 million tons of oil per year, or about 870,000 bpd. The project cost nearly $50 billion.
Earlier this year, we asked experts about the possible extension or non-extension of the Tengiz contract. Oil and gas expert Olzhas Baidildinov believes that, at a minimum, Kazakhstan's share in TCO should be increased.
"Although I am generally against extending any contract with them. Because the budget for the PBR was significantly overestimated. A similar project in terms of production volume on the Guyana shelf, aimed at producing 250,000 barrels of oil per day, was estimated by ExxonMobil at $12 billion. That is four times less than was spent on the Tengiz expansion project. And this even though the PBR was implemented at an onshore field with a fully developed infrastructure," the expert notes.
In his opinion, Kazakhstan will be able to continue developing the field and producing oil on its own, without the participation of investors. If the national company KazMunayGas (KMG) cannot cope with this, then a contractor can be brought in, as TCO is currently doing, such as Schlumberger, Baker Hughes, or another company that will carry out production.
At the same time, Tengiz oil is also needed for the domestic market. According to the government's plans, a new oil refinery with a capacity of 10 million tons per year is to be built in Kazakhstan in the 2030s. Since oil production at most existing medium and small fields is declining, likely, only the large fields - Tengiz, Kashagan, and Karachaganak - will be able to supply raw materials for domestic processing. Earlier, the Ministry of Energy had already announced plans to discuss this issue during negotiations on contract extensions.
In addition, there are questions about the share of local content in the purchases of the operators of the three large fields mentioned above—it is very low, especially for the purchase of goods produced in Kazakhstan.
Environmental requirements for subsoil users have also been tightened in Kazakhstan. Since the Tengiz agreement was signed more than 30 years ago, Kazakhstan has amended its legislation and adopted an Environmental Code. Any new subsoil use contract must be signed, taking all these changes into account.