Chevron announced that its 50%-owned affiliate, Tengizchevroil in which Exxon Mobil (25%), KazMunayGas (20%) and Lukarco (5%) also have stakes, will proceed with the expansion of oil production at the Tengiz oil field. Expansion costs are estimated at USD 36.8 billion. Under the plan, crude oil production at the Tengiz oil field will increase by about 260,000 barrels per day. The project is said to break even with an oil price at about USD 50 per barrel.

Impact on country risk

This major foreign investment is good news for Kazakhstan which was hit hard by the low oil prices given its reliance on oil as a source of public revenues and current account receipts. Indeed, GDP growth is expected to be sluggish this year, and the current account balance is likely to remain in deficit (whereas it was in surplus as recently as in 2013). On the back of low growth, rising inflation, sharp currency depreciation, fiscal tightening and uncertainty surrounding the president’s succession, social tensions are on the rise as highlighted by the recent protests against the land code modification. In this context, this important investment is welcome as it is likely to boost growth and create new jobs. In the longer term, oil production – which is currently slowing in mature fields and hasn’t started yet in the Kashagan field – is also expected to increase. On the negative side, the expansion is likely to boost imports. As a result, the current account balance is likely to deteriorate in the short term before improving in the medium term.

Analyst: Pascaline della Faille, p.dellafaille@credendogroup.com