(CVX) Chevron Expanding Caspian Pipeline

Integrated energy company Chevron Corporation (CVX), through its subsidiary Chevron Neftegaz, has commenced the construction for the expansion of the Caspian pipeline. The total value of the development project is estimated at $5.4 billion.

The venture intends to enhance the capacity of the 900-mile long pipeline to 1.4 million barrels per day from its current level of 730,000 barrels per day. The pipeline, which transports crude oil from western Kazakhstan to a terminal in the Black Sea, is expected to come online in three phases with capacity increasing progressively from 2012 to 2015.

Under the restoration program, the existing five pump stations will be revamped while ten new pumping stations and a third offshore mooring point at the Black Sea terminal will be added. Additionally, a 55-mile section of the pipeline and six new storage tanks will be restored. All the contracts for these jobs were awarded in May.

Chevron is the third largest shareholder (having 15% interest) and provider of project management services of the Caspian Pipeline Consortium (CPC) –– the association that operates the pipeline. The two major stakeholders of the consortium are Russian Federation, controlling a 24% interest and Republic of Kazakhstan with a 19% interest.

San Ramon, California-based Chevron is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses. The company faces competition from peers such as BP plc (BP) and Exxon Mobil Corporation (XOM).

We remain optimistic about Chevron’s longer-term outlook based on its impressive business model, greater focus on crude oil compared to natural gas, healthy balance sheet and various investment opportunities.

Additionally, the company’s strategic initiatives such as aggressive cost reduction, exiting unprofitable markets and streamlining the organization are expected to have positive effects going forward. Hence, we maintain a long-term Outperform rating on the stock.

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