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UPDATE 2-Chevron sees cost jump at Australia Gorgon LNG project

Wednesday, 11 Dec 2013 | 8:40 PM ET

LOS ANGELES, Dec 12 (Reuters) - Chevron Corp raised the cost of its giant Gorgon liquefied natural gas (LNG) project in Australia by $2 billion on Wednesday, the second increase in just over a year to take the total cost to $54 billion.

The cost increase at Gorgon was part of a jump in Chevron's overall investment spending to $42 billion this year, far more than the $36.7 billion the company originally budgeted. Larger rival Exxon Mobil Corp's 2013 budget was $38 billion.

Gorgon is among around $190 billion worth of LNG projects under way in Australia which have suffered cost blowouts from mounting costs due to labour shortages and foreign exchange movements.

"Gorgon project economics are attractive," Chevron Vice Chairman George Kirkland said in a statement, adding that the project is 75 percent complete and will start-up in mid-2015.

"We also anticipate 2014 will represent the peak year for spending on our Australian LNG projects as we move them closer to first production," Kirkland said.

Chevron, the second largest U.S. oil company, added $15 billion to the Gorgon budget late last year.

Chevron owns 47 percent of Gorgon, while Exxon and Royal Dutch Shell Plc each hold 25 percent stakes and the rest is shared by Japanese LNG buyers.

Investors are putting increased pressure on the world's biggest oil companies to rein in spending and return more money to shareholders - a trend Shell recently warned against because it may create oil shortages in the future.

Chevron's overall LNG production, including that from another Australian plant being built called Wheatstone and a newly opened development in Angola, is expected to double to the oil-equivalent of 460,000 barrels per day (boepd) in 2017.

That is a major part of the production Chevron plans to add as it pursues its 2017 production target of 3.3 million boepd, up from about 2.6 million currently.

In a statement, Chief Executive John Watson said 2013 would be "a relative peak year for investments."

The company also plans to spend $39.8 billion on projects and exploration in 2014, as it finishes work on huge developments in Australia as well as the Gulf of Mexico.

Chevron has three projects in the works in the Gulf of Mexico: Jack/St Malo, Big Foot and Tubular Bells. The Jack/St. Malo project is scheduled to start next year, while the Big Foot project is forecast to start in the second quarter of 2015, Chevron said.

The San Ramon, California-based company also included in its list of major projects the expansion of the Caspian Pipeline in Kazakhstan and Russia and development of the Usan and Agbami deepwater fields in Nigeria, among others.

As for the "downstream" budget for refining and chemicals, Chevron set that at $3.1 billion, compared with a budget of $2.7 billion this year.

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