Aug. 6 (Bloomberg) -- Chevron Corp., the second-largest U.S. oil company, plans to start pumping crude from a $2.8 billion offshore project in Brazil early next year to help stem declines in production.

Output at the Frade field in Brazil will peak at about 85,000 barrels a day, Chevron spokeswoman Margaret Cooper said today in an e-mailed statement. Brazilian President Luiz Inacio Lula da Silva said in June that offshore discoveries may allow the country to surpass the U.S. as the world's third-biggest oil producer.

``Brazil's getting additional supplies to the market,'' said Hirofumi Kawachi, an energy analyst at Mizuho Investors Securities Co. in Tokyo. ``It's taking advantage of technology owned by major oil companies to extract oil from fields in the deep sea and places that are hard to reach.''

Demand for deep-sea rigs and platforms has increased backlogs at shipyards in Asia to record levels, with deliveries stretching into 2012. Crude oil's 65 percent gain in the past year and dwindling reserves in shallower waters are prompting oil companies including Chevron, Exxon Mobil Corp. and Total SA to step up exploration.

San Ramon, California-based Chevron reported last week that its production fell to a three-year low in the second quarter. Chief Executive Officer David O'Reilly, 61, may struggle to fulfill his pledge to boost production by 3 percent annually through 2010. He has postponed eight major developments in the past two years on equipment failures and escalating costs.

Timeline Unchanged

Chevron expected to start output from the Frade field by late 2008 or early 2009, according to a July 2006 statement. In March 2007, Chevron said the start-up would be in 2009. The company is still on track to begin production from the field in 2009, spokeswoman Cooper said.

In Brazil, Chevron managers were working to start production by December 2008 until ``at least last week,'' said Luis Felipe Reis, a technology and communications manager for Chevron in the country.

Reis, who made his comments yesterday at an industry event in Petropolis, Brazil, didn't specify whether the December deadline was for commercial output or test production. Delays in the delivery of production ships and drilling rigs could push back the timeline, he said.

``It's not unusual to have some slippages in this tight labor and materials market,'' said Victor Shum, senior principal at energy consulting firm Purvin & Gertz Inc. in Singapore. Delays in commissioning of new fields are ``contributing to the bullish cycle for oil,'' he said.

Stakeholders

Chevron operates Frade and has a 51.74 percent ownership stake. Brazil's state-controlled Petroleo Brasileiro SA owns 30 percent, and Japanese partners led by Inpex Holdings Inc. hold the remaining 18.26 percent.

Reis said a floating production, storage and offloading vessel, or FPSO, that is being built in Dubai is delayed, as is a drilling rig from Singapore.

Petroleo Brasileiro is providing a temporary rig to help Chevron make up for delays in the delivery of its own rig and meet an August drilling deadline, he said.

The FPSO ship being built in Dubai is due to arrive in Brazil in September, Petroleo Brasileiro's press office said in a written reply to questions. Inpex's Tokyo-based spokesman Kazuya Honda said production at the field will start sometime next year, declining to elaborate.

Campos Basin

Frade, which means monkfish in Portuguese, is in the north of the Campos Basin, a region responsible for more than 80 percent of Brazil's oil output. The field's wells are located at water depths of between 1,000 and 1,200 meters, according to Petroleo Brasileiro.

Chevron's second-quarter profit fell short of analyst estimates after oil and natural-gas production dropped and the company's biggest refinery was idled for repairs. The company's shares have fallen 11 percent. Chevron rose 82 cents to $83.31 at 1:51 p.m. in New York Stock Exchange composite trading.

The Chevron unit that bought exploration rights to the Frade field in 1999 paid $6.06 million, 24 times the minimum bid, according to Brazil's National Petroleum Agency, which ran the auction. The Japanese venture, Frade Japao Petroleo, bought a stake from Petroleo Brasileiro in July 1999.

Frade is the first Brazilian project in which Japanese companies hold a stake to produce oil, helping Asia's largest economy reduce its dependence on supplies from the Middle East.

Inpex, which owns 37.5 percent of the Japanese venture, wants to increase global production to about 700,000 barrels of oil equivalent a day, the Tokyo-based company said in May. Government-owned Japan Oil, Gas & Metals National Corp. has a 50 percent stake in the venture, and Sojitz Corp. owns 12.5 percent.

To contact the reporter on this story: Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net; Jeb Blount in Petropolis, Brazil, at jblount@bloomberg.net

Last Updated: August 6, 2008 13:56 EDT