12 Aug 2010 15:44

Kashagan Phase 2 delayed until 2018-2019, KMG to invest $8 bln by 2015

ASTANA. Aug 12 (Interfax) - The second phase of the Kashagan offshore oil project in Kazakhstan is being postponed until 2018-2019, the chief of KazMunayGas (KMG), the national oil and gas company, said.

"The group of six Kashagan participants on July 27 informed the [Kazakh] oil and gas minister that the timeframe for phase two at the Kashagan field was being put back to 2018-2019, which, correspondingly, will affect the launch of the Kazakh Caspian Transport System," Kairgeldy Kabyldin said at a meeting of the board of directors at the Samruk-Kazyna fund.

KMG will invest $8 billion in the project in 2010-2014, Kabyldin said.

"KMG's [overall] investment in 2010-2014 [inclusive] will be $20 billion, including $8 billion in Kashagan and $4 billion in refinery modernization," he said.

The North Caspian Project for development of the Kashagan field was launched back in 1997 when the Kazakh government and AGIP KCO, the previous operator of the project, signed a production sharing agreement (PSA) for the period of 40 years.

The licensed area will also include the three oil-bearing structures Kalamkas, Aktoty, Kairan in addition to Kashagan. These four structures consist of 11 marine blocks, which occupy an area of about 5,600 square kilometers.

Originally the shareholders had the following stakes in Agip KCO: Eni, Total, ExxonMobil, Royal Dutch/Shell 18.52% each, ConocoPhillips 9.26%, Inpex and KazMunayGas 8.33% each.

Agip KCO was to start the commercial production at the Kashagan field back in 2005. However, this deadline turned out to be unrealistic and in February 2004 Agip KCO and the Kazakh government agreed to postpone the commencement of commercial oil production at Kashagan until 2008.

In mid-summer 2007 Agip KCO again notified the Kazakh government of its decision to further postpone the commencement of commercial production till the second half of 2010. Agip also announced an increase in the expenditures from $57 billion to $136 billion.

In late June 2008 the Kazakh government and Agip KCO agreed that commercial production at the Kashagan field must begin no later than October 2013.

In January 2009 AGIP KCO partners agreed to increase KMG's share in the Kashagan project to 16.81%. The ownership structure of Agip KCO changed as follows: Shell, KazMunayGas, Eni, ExxonMobil and Total with a 16.81% stake each, ConocoPhillips with 8.4% and Inpex with 7.56%. The Kazakh government paid $1.7 billion for the acquisition.

In January 2009 the partners of the project agreed to create a new company to become the operator of the Kashagan project and the same month North Caspian Operating Company (NCOC) took over the Kashagan project from Agip KCO, all the shareholders still having the same stakes in the new operating company as follows: Shell, KazMunayGas, Eni, ExxonMobil, Total each with a 16.81% stake, ConocoPhillips with 8.4% and Inpex with 7.56%.

NCOC estimates that Kashagan contains a recoverable 11 billion barrels of oil and overall geological reserves of 35 billion barrels. Kashagan is believed to be the world's biggest oil field after Prudhoe Bay in Alaska.

The bulk of the work at onshore and offshore facilities had been completed by the end of 2009, as agreed with the Kazakh government, with a view to starting production at Kashagan at the end of 2012.

The launch of production under phase one is officially slated for the end of 2012.

Phase one production is expected to peak at 300,000 bpd (stages one and two), rising in time to 450,000 bpd. Peak production of 1.5 million bpd is possible during full-scale production, expected towards the end of the next decade.

The Kazakh Caspian Transport System (KCTS) is designed to export the growing volume of Kazakh oil produced primarily at the Kashagan field, through the Caspian Sea to international markets through the East-West energy corridor along the route Eskene-Kuryk-Baku-Tbilisi-Ceyhan. The oil was supposed to be transported through an Eskene-Kuryk pipeline on the Kazakh Caspian coast to an oil terminal from which tankers would sail to Azerbaijan, after which the oil would be transported through the Baku-Tbilisi-Ceyhan pipeline (BTC).