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October 21, 2010

Chevron moves ahead on massive deepwater GoM project

In a $7.5 billion vote of confidence in the future of the deepwater Gulf of Mexico, Chevron Corporation (NYSE:CVX) today announced it has sanctioned development of the Jack/St. Malo project, its first operated project located in the Lower Tertiary trend in the deepwater U.S. Gulf of Mexico.

The move is seen as a major step forward after the initial backlash that followed the Deepwater Horizon incident. While the new regulatory climate after that incident is likely to slow the issuance of permits for the Jack/St. Malo project, the delay is not seen as being interminable. However, further confusion on what is happening in the offshore regulatory arena was sown Tuesday when U.S. District Judge Martin Feldman said that rules imposed in a June 8 notice to offshore operators can't be enforced as the government issued them without soliciting public comment. Last month, the Interior Department announced it was replacing the June 8 safety rules with new guidelines. Feldman struck down the Interior Department's first moratorium on deep water drilling in June.

None of this is fazing Chevron.

"Jack/St. Malo is the latest example of Chevron advancing its industry-leading queue of major capital projects," said George Kirkland, vice chairman, Chevron Corporation. "The Lower Tertiary is recognized as a huge resource with the potential for long life projects of up to 30 to 40 years and the opportunity to enhance recoveries through technology."

The Jack and St. Malo fields are located within 25 miles (40 km) of each other approximately 280 miles (450 km) south of New Orleans, Louisiana, in water depths of 7,000 feet (2,100 m). The initial development of the project will require an investment of approximately $7.5 billion. It will be comprised of three subsea centers tied back to a hub production facility with a capacity of 170,000 barrels of oil and 42.5 million cubic feet of natural gas per day. Startup is anticipated in 2014.

"The Jack/St. Malo project builds off our success in the U.S. Gulf of Mexico and will enable Chevron to help meet future U.S. energy demand while delivering a safe and reliable deepwater operation," said Gary Luquette, president, Chevron North America Exploration and Production Company. "Today's announcement is another step in our efforts in the development of the Lower Tertiary trend. We have an operating interest in the 2009 Buckskin discovery and participate in the Perdido Regional Development, which provide significant learnings we can apply to Jack/St. Malo."

The Jack and St. Malo fields are estimated to contain combined total recoverable resources in excess of 500 million oil-equivalent barrels. Seven exploration and appraisal wells have been successfully and safely drilled at these fields since 2003. Chevron, through its subsidiary Chevron U.S.A. Inc., has working interests of 50 percent in the Jack field, 51 percent in the St. Malo field, and 50.67 percent in the host facility.

Chevron is one of the top leaseholders in the Gulf of Mexico, averaging net daily production of 149,000 barrels of crude oil, 484 million cubic feet of natural gas and 14,000 barrels of natural gas liquids during 2009.

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