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George Kirkland, an Executive Vice President, Upstream and Gas, Chevron Corporation, answers the questions of Oleg Chervinskiy, a Petroleum Editor-in-Chief

 

- Mr. Kirkland, how do you evaluate Chevron's cooperation with Kazakhstan?

 

- As you know, Chevron has worked in Kazakhstan for over 15 years. We are very positively working with the Government of Kazakhstan, with KazMunaiGas as part of Tengizchevroil joint venture. Chevron went there early, took some risks as the President says every time we meet him. We recognized risks, but we also recognized the opportunity. After 15 years we can see that the relationship and the success for both Kazakhstan and Chevron have been great.

 

We operate in many countries around the world and we operate both onshore and offshore. Chevron has strategic advantages over our competition. For the last few years we have been the leader of the international companies in exploration. We believe we have the best project portfolio than anyone else in the industry. And of course our developments in Kazakhstan are big part of that. Once you get a chance to go to Tengiz, you will get to see some of the technologies that have been applied there and recognize that Tengiz oil is one of the most difficult oil to produce in the world. Tengiz field is deep, there is a very high pressure and very large, significant H2S hydrogen sulphide content. We will show you there that it can be done well, safely and very much in environmentally friendly manner. And I think another important thing is participation of Kazakhstani employees in each and every step of the project.

 

If we talk about our portfolio more elaborately, we have four upstream companies with the regional focus. Our net production capacity is approximately 2.7 mln. barrels per day. Our portfolio is one of the largest in the world. There are over 40 projects in the world in which Chevron's share is greater than 1 billion dollars. In some projects the Chevron share exceeds several billion dollars. I am very pleased we have a very diverse portfolio with projects on every continent of the world except Antarctic. So it's a real plus for the company to have this diversity.

 

As I mentioned before, Tengiz is an important part of our portfolio. I am an engineer myself and when I go and see the new plant at Tengiz I get this pride in my heart to see such a high quality facility. The sulfur plant that's been put in there is the largest one in the world. The Sour Gas Injection compressor there is, likewise, one of the largest compressors in the world.

 

Chevron has a big experience in working with hydrogen sulfide. Starting from 1960s, we have dealt with hydrogen sulfide processing in Canada. There is a plant in Wyoming, and in 1980s we had significant operations there. And, of course, Kazakhstan, where we came to Tengiz field in early 1990s. Now we have been invited to the province of Sichuan in China to construct a hydrogen sulphide gas plant. This invitation to China is a direct acknowledgement of our experience of handling hydrogen sulfide starting from Canada, then the U.S. and, of course, at Tengiz. It says about opportunities for a new business. And in our business there have always been opportunities for the new projects development.

 

 

- After the Second Generation Plant had been launched at Tengiz, the plans on construction of the Third Generation Plant were made public. What is the progress there? Will the world financial crisis affect the implementation of these plans?

 

- Yes, indeed, we plan to construct one more plant, we call it the Next Generation Plant. The front end engineering design of this project has already been underway. We study the reservoir and try to understand what kind of plant we need. After that we will pass over to design and estimate works, and according to my estimate we will commence to make design and estimate documentation at the end of this year - beginning of the next year. I think that economic efficiency of the next generation plant will be one of the highest in Kazakhstan and in the world. And, of course, we would like to proceed with full implementation of this project because it will be one of the best hydrocarbon production projects in the world.

 

If now we produce 540,000 barrels of crude per day at Tengiz, then with commissioning of the new plant we will be able to bring this indicator to 800,000 barrels per day and even to a million barrels. I hope that this project will be economically efficient for our joint venture partners and first of all Kazakhstan.

 

 

- Can you specify the time when this plant will be put into operation?

 

- It is necessary to remember that the Sour Gas Injection project at Tengiz started only last year. We are still determining what should be done further on. It is yet early to specify an exact time and discuss the Next Generation Plant in details.

 

 

- The production increase at Tengiz - it is certainly very good. But there comes an issue of produced crude transportation. Does Chevron consider any other export routes in addition to the existing ones? Or is the focus made on the Tengiz-Novorossiysk pipeline expansion project, known as CPC?

 

- I hope it is "Yes" to many of those questions. For Kazakhstan and for operators in Kazakhstan is important to have diverse export routes out of the country. And not only in order to move these barrels to world markets, but in order to raise the economy, increase return on investment from these projects. Chevron is always interested in finding and supporting additional export routes out of Kazakhstan. We work together very closely with the Kazakhstan government and KazMunaiGas on CPC expansion and we are well aligned on trying to find additional routes. We support the route through Azerbaijan, recently the Tengiz project started to ship crude oil via Baku-Tbilisi-Ceyhan pipeline. Moreover, we are very supportive of the efforts that Kazakhstan has made for the route to China. We do have one constraint on us - we can not participate at this point time in pipeline routes that go through Iran. Of course, it's purely political issue, not an economic issue.

 

 

- Mr. Vice President, will the Chevron strategy for exploration and new assets acquisition change in the circumstances when in the conditions of drop in the world price for petroleum the revenues from current projects are reducing?

 

- We have been spending on exploration about 2 billion dollars per year and my expectation is that we will spend approximately the same amount of money in 2009, as we did in 2008 and as we did in 2007. Our total capital expenditures in 2009 are very consistent with what we spent in 2008. There is no doubt that our cash flow in 2009 will slightly go down, but in terms of investments we try to keep the previous level. It will become possible due to the fact that Chevron has a very strong balance sheet.

 

 

- Now Kazakhstan is actively attracting investors to perform operations on the Caspian offshore blocks. Does Chevron have an intention to participate in this process?

 

- We are interested in exploration opportunities in the Caspian and we think our world class experience and the skilled workforce put us in a good position. We've talked to the Government and KazMunaiGas about opportunities to work on the Caspian shelf in future. We are hopeful that at some point in time we will find an opportunity that works for all parties. We believe we have something very special to bring - we are a very good explorer and a very good developer in the offshore environment. We also recognize that many companies would like to work in Kazakhstan for the same kind of opportunities.

 

 

- You are a member of the Foreign Investors Council under the President of Kazakhstan. How useful for you are the meetings as part of the Council's sessions, or is it just a tribute of respect to the country where the company operates?

 

- I think the meetings are very helpful for us to understand the Government's vision and direction it moves on. It is also an opportunity for sounding the concerns we have and the opportunities we look into. It also allows our company to engage with other companies operating in Kazakhstan. Therefore, I believe that to participate in this council is very helpful for us. I personally come to Kazakhstan two times a year. And on every trip I spend a day to visit Atyrau, Tengiz during each my trip.

 

 

- One of the problems for Chevron is sulfur storage at Tengiz, and the joint venture pays big fines to the Government of Kazakhstan for this. How is this problem solved?

 

- In the last two years sulfur storage volumes at Tengiz have been going down. Prices for the year 2008 were very good and sulfur was a very valuable product to sell. Our goal is always to move at least as much sulfur as we produce and over a time to reduce all the sulfur piles down to nothing. So we are going to continue to move and sell the sulfur around the world.

 

We've had a great success selling sulfur in particular last two to three years. The new development - the Sour Gas Injection and the Second Generation Plant project contributes to non-conversion of H2S into sulfur. We take at this point about 200 mln.cubic feet a day of that gas and re-inject it into the ground. That, of course, reduces the amount of the stored sulfur and it also maintains pressure in the reservoir and increases the reservoir recovery. Therefore, while considering the next expansion, it is these factors that we bear in mind: gas injection, it means less sulfur, reservoir pressure and reservoir recovery increase.

 

 

- Kazakhstan declared its intention to implement the national sulfur storage project for sulfur coming from Tengiz and in future from Kashagan. It was said that Chevron should also participate in this project. Is that true?

 

- This project is only at its initial stage, not all negotiations have been completed yet. Currently, only the discussion of how we will create this national storage is underway. Chevron is also very supportive of the central storage, but I emphasize that for us the important issue is sulfur sale and not storage. What we try to do is not to store this sulfur at all. And especially if we take Kashagan which arouses some concern - how much of this sulfur will the world market be able to accept? Tengiz is in the better position in this regard because we can sell it today and we are a big part of the world sulfur market.

 

 

George L. Kirkland

Executive Vice President, Upstream and Gas

 

George L. Kirkland is executive vice president of upstream and gas for Chevron Corporation. He is responsible for managing Chevron Corporation's global exploration, production and gas activities. He assumed this position in January 2005 and is headquartered in San Ramon, California.

 

A native of Florida, Kirkland graduated from the University of Florida with a bachelor's and a master's degree in civil engineering in 1972 and 1974, respectively. Upon graduation, he joined Chevron as a construction engineer in New Orleans, Louisiana. In 1978, he accepted an assignment with Caltex Pacific Indonesia, a Chevron affiliate based in Sumatra. From 1980 to 1985, he served as project engineering manager for the giant Duri Steam Flood project in Indonesia.

 

In 1985, Kirkland returned to the United States as a senior project manager for Chevron U.S.A. Production Co. Over the next three years, he held positions of increasing responsibility in Chevron operations in Midland, Texas, and Denver, Colorado. In 1988, he worked on the Chevron U.S.A. Production Co. headquarters' staff in San Francisco.

 

In 1990, Kirkland was appointed group manager of upstream technology for Chevron Research and Technology Co., for which he managed efforts aimed at providing technical support, technology development, project support and consultation to Chevron's worldwide exploration and production activities.

 

In 1992, he was named general manager of production for Chevron Nigeria Ltd. and was named general manager of asset management in January 1996.

 

In November 1996, Kirkland was appointed chairman and managing director of Chevron Nigeria Ltd. and was responsible for all its operations, including such diverse projects as the West African Gas Pipeline Project, a major gas-to-liquids project with SASOL of South Africa; the Escravos Gas Project expansions; and deepwater exploration offshore Nigeria. While in Nigeria, Kirkland took a very active role in industry, economic and environmental organizations.

 

In January 2000, Kirkland was named president of Chevron U.S.A. Production Co., responsible for exploration and production operations in the United States and Canada. In October 2001, he assumed the position of president of Chevron Exploration and Production Co. In January 2002, he was named president of Chevron Overseas Petroleum, responsible for managing Chevron's exploration and production activities outside North America.

 

Kirkland is a member of the Board of Trustees of Africa America Institute, a board member of Corporate Council on Africa, a director of the U.S.-Kazakhstan Business Association, a director of the US-ASEAN Business Council, and also a board member of the American Petroleum Institute.

 

Mr. Kirkland was born in August 1950.