Chevron Completes Agreements on Offshore Canada Field

By Joe Carroll

Aug. 20 (Bloomberg) -- Chevron Corp., the second-largest U.S. oil company, signed agreements to develop an offshore Canadian oil field that was stalled more than two years by an ownership dispute with the provincial government.

Production at the Hebron field, located 340 kilometers (211 miles) off Canada's east coast, is expected to begin in 2016 or 2018 and peak two years later at the equivalent of 150,000 barrels of oil a day, Newfoundland and Labrador Premier Danny Williams said today in a statement.

Chevron is counting on Hebron, which the company called ``key'' to its Canada growth strategy, to help stem declines in production and reserves. The field holds an estimated 400 million to 700 million barrels of recoverable oil, Chevron said in a separate statement, enough to supply every refinery on the U.S. East Coast for up to 16 months.

San Ramon, California-based Chevron plans to use a cement column to attach Hebron's production platform to the sea floor, similar to the design used by Exxon Mobil Corp. for the offshore Hibernia project northwest of Hebron, company spokesman Leif Sollid said today in a telephone interview from St. John's, Newfoundland. The company hasn't updated its C$5 billion ($4.7 billion) cost estimate for Hebron since late 2006, and Sollid said it's too early to give a new projection.

The province of Newfoundland and Labrador estimates development costs at C$4 billion to C$6 billion. Chevron has only five projects worldwide that are expected to cost that much or more, according to a presentation that the company's exploration chief, George Kirkland, gave to analysts in March.

Shares Rise

Chevron is project operator and owns a 26.63 percent stake. Partners include: Exxon Mobil, the largest U.S. oil company, with a 36.04 percent interest; Petro-Canada, whose stake is 22.73 percent; Norway's StatoilHydro ASA, 9.7 percent; and the province's Oil & Gas Corp., 4.9 percent.

Chevron rose 37 cents to $85.08 at 11:58 a.m. in New York Stock Exchange composite trading. Exxon Mobil rose 6 cents to $78.01, and Petro-Canada climbed 68 cents to C$45.85.

Negotiations to develop Hebron, discovered in 1981, collapsed in April 2006 because of disagreements between provincial authorities and the oil companies over ownership stakes. In August 2007, the companies agreed to sell the province a 4.9 percent stake for C$110 million and to pay a 6.5 percent royalty when oil sells for more than $50 a barrel.

Today's signing ceremony in St. John's formalized those arrangements. At current oil prices, Hebron may generate as much as C$28 billion in revenue for the province and C$8 billion for the federal government over the 25-year life of the project, Premier Williams said in the statement.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net.