Page 4 - FSU OGM Week 11 2021

FSUOGM COMMENTARY FSUOGM

BP drops Kazakh plans

The UK major says Kazakh offshore oil opportunities do not fit with its new strategy

KAZAKHSTAN UK major BP has scrapped plans to proceed make a foray in neighbouring Uzbekistan either.
with three Caspian Sea oil projects in Kazakh- The company had signed an agreement in May
WHAT: stan after announcing a shift in its global strategy 2020 with Azerbaijan’s state-owned SOCAR
BP has decided not last year towards renewables. The move, though and Uzbek authorities to establish a produc-
to proceed with three unsurprising given BP’s new direction, further tion-sharing agreement with the Samsko-Kas-
offshore oil projects in dashes hopes of greater development of Kazakh- bulak and Baiterek blocks in the Ustyurt region.
Kazakhstan. stan’s offshore reserves. BP is continuing to explore new areas in
Kazakhstan’s national oil company KazMu- Azerbaijan, however, where it is the largest for-
WHY: nayGas (KMG) published a letter sent by BP eign investor. It is currently drilling an explora-
BP is scaling back its oil last October on March 10, stating that after 18 tion well at the offshore Shafag-Asiman block in
and gas business. months of evaluation work, the UK major had the country, and plans three more at the Shallow
decided not to pursue the Bolshoy Zhambyl, Water Absheron Peninsula area later this year.
WHAT NEXT: Zhemchuzhnaya and Kalamkas Sea blocks.
The move, though BP agreed to assess the areas in May 2019, Dashed hopes
unsurprising, further shortly before Royal Dutch Shell announced it Kazakh oil production has significant growth
dashes hope of greater would give up on plans to explore Zhemchu- potential, even though the country cannot cur-
development of zhnaya and Kalamkas-Sea, the largest of sev- rent realise this potential because of OPEC+
Kazakhstan's offshore eral fields identified in the vicinity of the giant restrictions. But growth prospects are largely
reserves. Kashagan oil project. It took the decision after at the onshore Tengiz and Karachaganak and
concluding they were economically unfeasible. offshore Kashagan fields, which form the bed-
The Zhambyl block, meanwhile was previ- rock of Kazakhstan's oil industry. And with
ously explored by Korea National Oil Corp, but most onshore deposits currently in decline, the
the company withdrew in 2016 after sinking two country has made successive attempts to expand
dry wells. offshore development.
“Over the last two months, BP has announced At the time of its discovery in 2000, Kasha-
significant changes to our strategy focusing a gan was hailed as the biggest oil find in decades,
greater proportion of our capital in the future initially prompting a flurry of other offshore
on renewable energy and existing hydrocarbon deals in Kazakhstan. But the project soon ran
basins that we operate in,” the UK major said in into delays, major cost overruns and conflicts
the letter. “As a result of this corporate strategy between investors and government. These
change, these Kazakhstan opportunities would problems have made investors more reluctant
not compete for capital within BP and it does not to explore the country’s offshore, and many that
seem fair to KMG to continue to evaluate them if have committed to projects over the years have
they do not fit into BP’s new strategy.” suffered exploration disappointments.
BP pledged last year to scale back its oil and Kazakhstan’s government had high hopes
gas production by 40% over the next decade and for Kalamkas-Sea and Zhemchuzhina, given
increase investment in renewables tenfold. It also their close proximity to Kashagan, which has
said it would not explore for oil in any countries been in production since 2016. But Shell and
where it is not currently active. the other Kashagan partners have continued to
BP left Kazakhstan in 2009 when it sold its struggle with highly fluctuating levels of output
share of the Chevron-operated Tengiz field, at the field. The field’s highly-sulphurous oil also
which today is the Central Asian state’s biggest means extra processing and corrosion-proof
source of oil production, to Russia’s Lukoil. It pipelines are needed. The Kashagan investors
also divested its share in the Caspian Pipeline learnt about the latter issue the hard way, when
Consortium that delivers Tengiz’s oil eastwards they were forced to replace much of the project’s
to markets. pipeline infrastructure after sulphur-containing
The UK major signed a memorandum of gas was discovered to be leaking through pipes.
understanding with KMG in 2019 to study sub- Kashagan’s reservoirs are also subject to very
soil assets belonging to the Kazakh company and high temperatures and pressures. It is likely that
others in Kazakhstan. The pair went on to sign a deposits in the field’s vicinity will share some of
letter of intent on joint exploration and produc- these characteristics, helping to explain inves-
tion activities at the start of 2020. tors’ reluctance to explore and develop them
BP’s green pivot likely also means it will not further. ™

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