Page 5 - FSUOGM Week 42 2019

FSUOGM COMMENTARY FSUOGM
able to expand its onshore output quickly in the years after its 1991 independence with the help of foreign investment. But it has struggled to gal- vanise development in the same way offshore, despite offering dozens of blocks to investors over the years.
In some cases, investors signed on to develop offshore sites only to pull out after disappoint- ing drilling results. The cautionary example of Kashagan – Kazakhstan’s only offshore project that has reached production – also discouraged investors.
At the time of its discovery in 2000, Kashagan was hailed as the biggest oil find in decades, ini- tially prompting a flurry of other offshore deals in Kazakhstan. But the project soon ran into delays, significant cost overruns and wrangling between investors and the government.
Its investors had initially hoped to kick off production in 2008, but it was not until 2013 that first oil was achieved. Operations were then shut down weeks later after it was discovered that cor- rosive gas had been leaking from the field’s pipe- lines. Its entire offshore pipeline system had to be replaced, adding a further $4bn to its already huge cost of $50bn.
Kashagan was finally brought back on stream in October 2016, but troubles persisted, with NCOC struggling to keep output stable because of unpredictable reservoir character- istics. Production is predicted to reach 13mn tonnes (261,000 bpd) this year – a far cry from the 375,000 bpd first-stage plateau rate NCOC had been aiming for, although operations were disrupted in the summer because of scheduled maintenance.
Uncertain prospects
With Kalamkas-Sea and Khazar out of the pic- ture, at least for now, Kazakhstan has few new projects to look forward to, either offshore or onshore.
“The joint development of the Kalamkas-Sea and Khazar offshore oilfields has been the key greenfield project [to] watch in Kazakhstan’s oil sector,” Wood Mackenzie analyst Ashley Sher- man wrote in a research note on October 21. “Its timeline may have been long – with production not targeted until the late 2020s – but it would
have offered something vital: large-scale future oil production away from the country’s three megaprojects.”
Kashagan, along with the onshore Ten- giz and Karachaganak fields, accounted for almost 60% of Kazakh oil production last year and their share is only set to grow as smaller projects struggle with declining output. With Kazakhstan’s onshore oil and gas basins already extensively explored, developing the country’s offshore resources – estimated by the US EIA at 15.7bn barrels of liquids and 1tn cubic metres of gas – has become an increas- ing priority.
Active projects in Kazakhstan’s Caspian Sea are few and far between, however. Italy’s Eni and Russia’s Lukoil are targeting several blocks, although drilling is needed to determine whether they are feasible to develop.
“Kalamkas-Sea and Khazar are fields that will undoubtedly attract future interest from inter- national investors,” Sherman said, pointing to recent reforms to Kazakhstan’s tax code that have made some offshore fields more viable.
“But this is another reality check for the Caspian region’s oil and gas industry,” Sher- man continued. “Whether it’s because of tough logistics or complex geology, the shallow waters of Kazakhstan’s offshore face obstacles to full competitiveness against lower-cost deepwater opportunities elsewhere in the world ™
PROJECTS
North Caspian Operating Co. (NCOC) operates an offshore block containing Kashagan and four smaller deposits Kalamkas-Sea, Kairan, Aktoty, and Kashagan South West. Kashagan, situated 80 km offshore in waters 3-4 metres deep, is by far the largest, containing 9-13bn barrels of recoverable oil. It was discovered in 2000 but
did not enter production until 2016, at a cost of $55bn. NCOC’s shareholders include Shell, KMG, ExxonMobil, China’s CNPC, Italy’s Eni, France’s Total and Japan’s Inpex.
The Caspi Meruerty Operating Co. (CMOC) operates the nearby Zhemchuzhina (Pearls) block containing the Khazar and smaller Auezov discoveries.
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