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Exxon to take over as operator of Kazakh Kashagan field

Oil&Gas Materials 7 June 2014 19:12 (UTC +04:00)
Exxon Mobil is in line to take over as operator of the supergiant Kashagan field in a major breakthrough for the beleaguered $50 billion project offshore Kazakhstan
Exxon to take over as operator of Kazakh Kashagan field

Exxon Mobil is in line to take over as operator of the supergiant Kashagan field in a major breakthrough for the beleaguered $50 billion project offshore Kazakhstan, Caspian oil industry sources tell Nefte Compass.

Discussions with the US supermajor and other partners in the international consortium, the North Caspian Operating Co. (NCOC), are continuing, but Exxon could be appointed as soon as the end of June, one senior Kazakh official said on the sidelines of this week's Caspian Oil and Gas Conference in Baku, the capital of Azerbaijan.

Italy's Eni was given the job of operating the vast project in 2001. As the unique technical and environmental challenges in developing the field in the shallow waters of the northern Caspian, which has high reservoir pressures and high concentrations of the deadly hydrogen sulfide gas, became apparent, the top companies in NCOC each took a share of the main operating responsibilities in 2008.

However, there has been a long history of missed deadlines and budget overruns, culminating in late 2013 with a botched start at commercial production when, only days after finally coming on stream, the field had to be shut down.

Problems with leaky gas pipes mean the entire pipeline system will have to be replaced, leading to a further delay of at least two years, Oil and Gas Minister Uzakbai Karabalin confirmed last month. Kazakh officials say the new target date for first oil is end-2015, though other sources say mid-2016 is more realistic. It could take another two-three years for the field to reach the targeted Phase 1 plateau of 370,00 barrels per day.

The original contract to build the pipelines was awarded to Eni affiliate Saipem in 2005. NCOC maintains the leaks were the result of "stress cracking" caused by a high concentration of H2S mixed with water.

Kazakhstan has made clear its frustrations with the lack of progress at the supergiant field, which was initially due to have started production nearly 10 years ago and gradually ramp up to 1 million b/d in Phase Two. The government does not want to cover any of the additional costs and has hired Western consultants to work out what kind of compensation it should be entitled to for the latest in the long series of delays.
The senior Kazakh official said: "It is now not a massive problem, just with the pipelines. But it needs to be dealt with." The official said it had all added up to a disaster for Kazakhstan in terms of lost revenues.

The Kashagan shareholders are Eni, Exxon Mobil, Royal Dutch Shell, France's Total and Kazakh state oil company Kazmunaigas (KMG), each with 16.8 percent, and Japan's Inpex and China National Petroleum Corp. (CNPC) as junior partners.
In NCOC, Eni arm Agip KCO was responsible for delivery of Phase One, with Shell handling planning and development of Phase Two and Exxon taking care of drilling for Phase Two.

As the latest search for a new operator got under way, it became clear that the task would not be entrusted any more to Eni. The Italian company is said to have been a compromise choice for operator over a decade ago because traditional rivalries between the other large stakeholders blocked them from allowing each other to take the job.

One Western government source attending the Baku conference confirmed that Exxon would take over as operator and said the international consortium was likely in the future to become dominated by four companies -- Exxon, Shell, CNPC and KMG.
The list of shareholders has changed several times since the field was discovered in 2000, the world's largest find in more than 30 years, with recoverable oil reserves estimated at 13 billion barrels.

UK major BP and Norway's Statoil left the international consortium in 2001, followed two years later by the UK's BG. Last year, ConocoPhillips sold its stake to CNPC.

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