24 Aug 2010 16:18

CPC could raise up to $1 bln for pipeline expansion in 2012-2013

MOSCOW. Aug 24 (Interfax) - The Caspian Pipeline Consortium (CPC) could raise up to $1 billion to augment pipeline capacity in 2012-2013, the consortium's general director, Alexander Tarakanov, told reporters.

The consortium's revenue post-expansion could reach $2.5 billion per year from 2015, he said.

"We could theoretically need another $1 billion in external borrowing as per our current financial model by the end of 2012-2013," Tarakanov said.

"We'll try and avoid external borrowing, but we aren't ruling out the possibility of this," he said.

Some certainty ought to be shed over the issue by the end of this year. The financial model will improve if revenue is based on 35 million-40 million tonnes of oil per year from 2012, and in that case additional funding won't be needed, Tarakanov said.

The paperwork should be signed by December 15. "The general understanding is that this is the target date," Tarakanov said. Construction could begin in March-April next year, he said.

The 1,580-km CPC pipeline runs from the Tengiz oil field in West Kazakhstan to the Russian Black Sea coast. Capacity is currently 28.2 million tonnes per year, but actual throughput can exceed 30 million tonnes if anti-friction additives are used. The CPC pumped 34.57 million tonnes of export crude in 2009, 9.9% more than in 2008. It has pumped more than 225 million tonnes since going into service in 2001.

The CPC's estimated $4.6-billion phased expansion project, as approved at the end of 2009, is aimed at boosting throughput capacity from 32 million to 67 million tonnes. The project foresees the construction of ten additional oil-pumping stations (two in Kazakhstan and eight in Russia), six reservoirs for oil storage near Novorossiisk and a third single buoy mooring at CPC's sea terminal. The consortium also plans to replace 88 kilometers of pipeline in Kazakhstan.

Tarakanov said the CPC had adjusted the timeframe and phases for the expansion.

Existing pumping stations should now be modernized, the 88 km of pipeline in Kazakhstan replaced and the mooring built by 2012 in order to increase the system's capacity to 35 million tonnes from 28 million tonnes.

The second phase, which should raise capacity to 48 million tpa, should be implemented in 2013 and will see five new pumping stations and three new 100,000 cu m tank farms built at the sea terminal.

The third phase, in which another five pumping stations and three 100,000 cu m reservoirs will be built and throughput capacity augmented to 67 million tpa, is planned for 2014.

Expansion-related capex is approximately $450 million in 2010.

In time, the CPC should be carrying oil from the Kashagan field in Kazakhstan and Lukoil's and Filanovsky field in the North Caspian, Tarakanov said. He said the Filanovsky oil might enter the CPC via the Komsomolskaya or Astrakhanskaya pumping stations, but that Lukoil had not yet come up with the plans for this.

He also said he did not think the delay with developing Kashagan would affect plans to expand the CPC.

Ian MacDonald, the CPC's former chief, estimated in 2006 that the cost of expanding the pipeline might take two or three years to recoup. The cost of augmenting it was estimated at $1.8 billion at the time, but this has now gone up to $4.6 billion.

The CPC's Tarakanov said the consortium's revenue from tariffs was more than $1.1 billion in 2009, and that operating profit to International Financial Reporting Standards (IFRS) topped $600 million.

He said the cost of expanding the pipeline should be recouped in 2018-2019, by which time debt currently totaling $4.6 billion-$4.7 billion should be repaid.

The CPC should start paying dividends in 2018-2019, according to its existing financial model.

Tarakanov said that all companies should submit their commitments to ship oil under the expansion's first phase by September. He said the 2011 budget would be adopted in November.

A "pump or pay" contract will be signed with each consignor, and penalties will be commensurate with the transportation tariff, he said.

Fluctuating oil prices will not affect the cost of the CPC's services, Tarakanov said. The shareholders agreement sets an upper tariff threshold of 438 per tonne, he said.

The CPC's sovereign shareholders are Russia with 31% (managed by Transneft - 24% and CPC Company - 7%) and Kazakhstan has 20.75% (KazMunaiGas - 19% and Kazakhstan Pipeline Ventures LLC - 1.75%). The rest of the consortium belongs to private companies: Chevron Caspian Pipeline Consortium Company (15%), LUKARCO B.V. (12.5%), Rosneft-Shell Caspian Ventures Limited (7.5%), Mobil Caspian Pipeline Company (7.5%), Eni International (N.A.) N.V. (2%), BG Overseas Holding Ltd (2%) and Oryx Caspian Pipeline LLC (1.75%).