Chevron Says Some Parts of Australia LNG Project Need to Improve

Chevron Corp., operator of the A$52 billion ($49 billion) Gorgon natural gas venture in Australia, said some “uncertainties” remain in the construction of the project after its budget last year jumped 21 percent.

Some areas of construction “still need to improve” after Gorgon costs surged on gains in the Australian dollar, higher labor expenses and weather delays, Chief Financial Officer Pat Yarrington said on a Nov. 1 call with analysts, according to a transcript. Labor productivity at Gorgon, located on Barrow Island off northwest Australia, has increased, she said.

Chevron, the second-largest U.S. oil producer by market value, is completing its budget for the year and will inform investors of any potential cost changes, she said. Royal Dutch Shell Plc and Exxon Mobil Corp. are partners in Gorgon, which Yarrington said during the call is more than 70 percent complete.

“Productivity, I would say, is improving on all fronts but there are still some areas that still need to improve,” Yarrington said. “We are moving into a critical phase from a schedule standpoint on the project.”

Gorgon is one of seven liquefied natural gas projects being built in Australia to meet rising Asian demand for the commodity. Chevron said that it will weigh an expansion of Gorgon, Australia’s largest resources project, against competing investment proposals as costs in the country put Australia’s competitiveness at risk.

“There are still uncertainties that exist with a project of our size,” Yarrington said. “Our challenge every day is to mitigate the risks as they arrive.”

The Gorgon partners are interested in an expansion of the venture, Yarrington said. Gorgon is expected to deliver its first cargoes in the first quarter of 2015 after the LNG plant starts in late 2014, Chevron said in December.

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