Tengiz CEO expects partners to OK program to boost output by April

Feb 14. Dow Jones

Tengiz CEO expects partners to OK program to boost output by AprilTengizchevroil, Kazakhstan’s largest crude producer, expects to ramp up production by 12 million metric tons a year (or about 260,000 barrels a day) to 37.8 million tons by 2017 under a $20 billion program whose next phase is awaiting approval by the company’s partners, General Director Tim G. Miller said Tuesday.

Tengiz, located on the shore of the northern Caspian Sea, is the deepest producing giant oilfield in the world. Its owners are Chevron Corp. (CVX) (50%), Exxon Mobil Corp. (XOM) (25%), Kazmunaigaz NOP, the state oil company (20%) and LukArco (5%).

The investment program includes building a new crude-processing plant, a separate pressurizing unit that will make the new and existing plants work more efficiently, and drilling some 20 new wells, he said.

The new production level, Miller said in a separate interview: “is probably the maximum the field can produce, but it’s also quite possible it could produce more as technology improves.”

Miller said the new production unit, the Future Growth Project, or FGP, would cost $7 billion to $8 billion and would produce only crude. The associated gas and sulfur would be re-injected into the field, increasing both daily output and the total amount of recoverable oil.

“We have a letter out to our partners asking for their support to move FGP into FEED (Front-End Engineering Design) and we expect a decision from our partners before April,” he said.

The existing two processing units produced crude, sulfur and gas, of which a third is already being re-injected.

TCO was unable to sell most of the sulfur it produced, so it was stocked outdoors but after the Kazakh government expressed concerns about pollution, TCO has been selling its sulfur faster than it is producing it, and the stocks are down to 3.9 million tons from a peak of 9 million tons in 2005.

The second large component of the expansion, which will also cost between $7 billion and $8 billion, is a Wellhead Pressure Management Project. It is designed to balance the pressure between the wellheads and the processing units to maximize efficiency when wellhead pressure drops as more oil is extracted.

This project is already in the FEED stage.

The third component, Miller said, will be the drilling of some 20 wells by 2017, including three or four this year. “We expect to start in April,” he said. The total cost of these wells is estimated at $3 billion to $4 billion.

Currently the field has about 110 wells functioning at any given time, added deputy general manager Linsi Crain.

Miller also said that TCO is in negotiations with the BTC pipeline company, which manages a pipeline that runs from Baku, Azerbaijan, to Ceyhan, Turkey, on the Black Sea, to ship some of its oil through it.

“We have not come to an agreement yet, we hope to do so in 2012, but we’re not going to make an agreement at a bad price, we want it on our terms and at our prices,” Miller said.