Page 4 - FSUOGM Week 31 2019

FSUOGM COMMENTARY FSUOGM
Kazakh producers strive for the right to export
KAZAKHSTAN
WHAT:
London-listed Caspian Sunrise recently secured the right to export its oil from Kazakhstan.
WHY:
It can now sell 70% of oil from its MJF structure at double the price.
WHAT NEXT:
Other producers have been less fortunate, with export restrictions sti ing smaller-scale developments.
KAZAKHSTAN’S oil industry centres around three projects – Karachaganak, Kashagan and Tengiz – which together account for a 60% and growing share of national output. Beyond this trio of fields, much of the remaining oil that is produced comes from largescale Chinese ventures.
However, several junior independents have managed to carve out a niche in Kazakhstan. e largest among them by production capacity is Nostrum Oil & Gas, a UK-based company oper- ating the Soviet-era Chinarevskoye oil deposit. Other includes Caspian Sunrise, a London-listed explorer with rights to the BNG block and Can- ada’s Condor Petroleum, which produces from the Zharkamys West-1 block.
While examples have shown that small- er-sized producers can enjoy success in Kazakh- stan, they can also face signi cantly obstacles to bringing their projects into development. ey o en nd it more di cult to overcome regulatory obstacles than larger operators. And nowhere is this more apparent than with obtain- ing export permits. While Kazakhstan has exten- sive export infrastructure in place, one of main challenges for juniors is getting their oil out of the country.
Caspian Sunrise recently overcame this difficulty, announcing last month that it had secured the right to export oil from the MJF structure within the BNG contract area. In the past, the operator had to sell its oil domestically at between $18-20 per barrel, limiting its reve- nue generation signi cantly. It can market 70% its production at double the price internationally, though it is still required to sell the rest locally.
Caspian CEO Clive Carver said at the time that the right to export would allow the com- pany “to move forward at a faster pace with both
development plans for the MJF structure.” ese plans include drilling more wells into BNG’s deeper zones, estimated to cost between $7-10mn each compared with just $1.2-1.5mn for shallow wells. But the rewards of deeper drill- ing are much greater, according to Caspian, with wells owing at rates of between 1,500 and 3,000 barrels per day versus just 500 bpd at shallow
boreholes.
Other players have been less fortunate. Oper-
ations at Australia-based Jupiter Energy’s Block 31 in Kazakhstan ground to a halt in 2015, a er the collapse in global oil prices made it impos- sible for the company to extract oil at a pro t. Jupiter managed to resume production at some wells in late 2017, but until it receives the right to export, its prospects look uncertain. Condor Petroleum is faring better, but likewise cannot ship its oil overseas at this stage.
On paper at least, in order to secure export licences, Kazakh operators need to demonstrate to authorities the commercial value of their projects, and show that they have the means of reaching overseas markets. And here lies the dif- culty. ey can do this by investing in produc- tion growth and the necessary infrastructure to access the country’s pipeline network, but lack funding because of their reliance on low-margin domestic oil sales.
Kazakhstan has reasons for wanting to place restrictions on exports. The government is acutely aware it needs enough oil supply for its domestic re neries, as the country has su ered a series of fuel shortage crises over the past decade. But these restrictions continue to weigh down on upstream investment, potentially stifling new projects and making the oil industry – the bedrock of Kazakhstan’s economy – increasingly reliant on a handful of megaprojects.™
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w w w . N E W S B A S E . c o m Week 31 07•August•2019