Fitch: Challenge for Kashagan partners to recover investment due to low oil prices
The resumption of oil production at the Kashagan oil field is positive for Kazakhstan's credit profile and should more than offset declining production at other sites, Fitch Ratings says.
However, it will be a challenge for partners to recover their investment in the project under our oil price projections, making an expansion of the project unlikely given other risks.
The oil production was launched on Kashagan field in October 2016.
Fitch expects production from the field to reach up to 300,000 barrels of oil equivalent per day (mboepd) in 2017-2018, assuming there are no further significant technical problems.
This would be equivalent to 18 percent of total hydrocarbon production in Kazakhstan in 2015. Kashagan production will therefore help the country to remain an important supplier of oil to Europe and China as production at brownfield sites declines.
As for many other mega oil and gas projects launched over the last couple of years, it will be difficult for Kashagan to recover its $50bn-plus capex based on our long-term Brent price assumption of $65/bbl, despite the weak tenge.
In Fitch's view, there is a possibility that the consortium that includes ExxonMobil, Shell, Total, Eni, China National Petroleum Corporation and NC KazMunayGas (NC KMG) will postpone the potential project expansion or may not proceed with it, if oil prices do not rebound more strongly from current levels, given the project complexity and the more conservative approach to mega-projects by the majors.