Kazakhstan to delay work on vast oil field by three more years

Apr 5. AFP Telegraph

By Richard Orange

Kazakhstan to delay work on vast oil field by three more yearsKazakhstan is planning a three-year halt to work on the main phase of the super-giant Kashagan oil field development, as international oil companies Royal Dutch Shell and Exxon Mobil (NYSE: XOM – news) fight to convince the country’s oil ministry to back a simplified design, which would slash costs by $18bn (?11bn) to $50bn.

The delay, if approved, could push the start of full production from the field well into the next decade, making it all but impossible for Shell (LSE: RDSB.L – news) and its partners to make an acceptable profit before the contract expires in 2037.

The Kazakhs are considering shelving the new simplified design, and keeping the field producing at its initial rate of 375,000 barrels per day (bpd) for at least three years, after which the NCOC consortium could use a greater understanding of the geology to produce a better design for the second phase, when production is expected to hit 1.5m bpd.

When the oil field was discovered in 2000, it was the biggest find in more than 30 years, with reserves of 9bn-13bn barrels. But under Italy’s ENI (EUREX: E1NT.EX – news , the company chosen to operate the project, costs soared to $136bn.

The start date also slipped from the target of 2005.

NCOC’s new design for the field was informally presented to the Kazakhs at the end of last year. An official said Kazakh oil ministry officials were unhappy with NCOC’s decision to use a new geological model of the field, which was presented last month by Exxon.

“Frankly, we laugh at their model,” the official said. “It’s based on too many assumptions and the data is very doubtful.”

Over the next three months, the consortium will present their model of how oil will flow as it is produced, after which the Kazakhs will make a final decision on the freeze.

Shell, Exxon Mobil, Total (Euronext: FP.NX – news) and KazMunaiGaz all have a 16.81pc stake in the field. ConocoPhillips (EUREX: COPF.EX – news) has 8.4pc, and Japan (NYSE: MCO – news) ‘s Inpex (Frankfurt: A0JD4G – news) 7.56pc.