Astana, Kazakhstan, Dec.26
By Daniyar Mukhtarov - Trend:

North Caspian Project

North Caspian Production Sharing Agreement envisages the implementation of the exploration program which was carried out from 1998 to 2004. All exploration wells gave positive results.

The preliminary oil reserves at the fields upon the results of exploration and evaluation are as follows:

Field		Geological reserves	Recoverable reserves
Kashagan		4.850 mln tons of oil	1.475.5 mln tons
Kalamkas - sea		159 mln tons of oil	57 mln tons
South-Western Kashagan		20 mln tons of condensate	6 mln tons
Aktoty		269 mln tons of condensate	100 mln tons
Kayran		150 mln tons of oil	56 mln tons
Total on North Caspian Project		5.448 mln tons	1694 mln tons

North Caspian Operating Company BV (NCOC) was established to develop the project.

Two new facilities, namely, a gas processing plant and an oil refinery are planned to be built within the Kashagan project onshore, 35 kilometres away from the field. The excess sulphur dioxide gas which will remain after the main injection of volumes into the reservoir via a 35-kilometre pipeline will be transported for processing to the gas processing complex Bolashak.

The plant will process over 1.1 million tons of sulphur per year. The new refinery will be located near the eastern part of the Bolashak plant. It is planned to extract oil from 240 wells within the Kashagan project.

Project status:

U.S company ConocoPhillips announced its intention to sell its stake worth 8.4 percent in the North Caspian project (Kashagan) in Kazakhstan in November 2012 to a subsidiary of the Indian state oil company ONGC, responsible for international projects, - ONGC Videsh Limited.

The deal was worth $5.5 billion. According to the Kazakh laws, the deal must be approved by the country's authorities as Kazakhstan has a priority right to purchase this share.

On July 2, 2012, the Kazakh Oil and Gas Ministry sent a message notifying ConocoPhillips of the government's intention to use its privilege to acquire ConocoPhillips's 8.4 percent stake in the North Caspian project (Kashagan field). KazMunaiGas national company acted as the buyer.

In early September 2013, two heads of national companies - KazMunaiGas and Chinese CNPC signed a purchase-sale agreement of American ConocoPhillips's share in this project.

Moreover, they signed a strategic cooperation program for the two state-owned companies. Two transactions on the North-Caspian project were completed on Oct. 31, 2013. Initially, American ConocoPhillips sold an 8.4 percent stake in Kashagan for $ 5.4 billion to KazMunaiGas. Then a subsidiary of KMG Kashagan BV national company ceded an 8.33 percent stake in PSA for CNPC Kazakhstan BV. Thus, Chinese CNPC appeared among the shareholders (NCOC).

Currently, the shareholders of the consortium are as follows: KMG Kashagan BV - 16.88 percent, Agip Caspian Sea B.V. - 16.81 percent, ExxonMobil Kazakhstan Inc. - 16.81 percent, Shell Kazakhstan Development BV - 16.81 percent, Total EP Kazakhstan - 16.81 percent, Inpex North Caspian Sea Ltd. - 7.56 percent, CNPC Kazakhstan B.V. - 8.33 percent.

Kazakhstan became the biggest participant in the North Caspian project through KMG Kashagan BV. Its share increased from 16.81 to 16.88 percent.

The Chinese side undertakes to finance a KMG share in the second stage of developing the Kashagan field, which will require billions of dollars. Moreover, the Chinese company undertook to construct a pipe plant and a complex of oil equipment in Aktau.

Oil production at Kashagan field was launched on Sept. 11, 2013. It was suspended on Sept. 24 after revealing a gas leak in the ground-based section of the pipeline running from D Island to the onshore processing facility Bolashak.

According to the regulations, the Department of Emergency Situations and the relevant bodies were immediately informed. The pipeline access was ensured. The relevant junctions were replaced.

Oil production was resumed but stopped again on Oct. 9 after another leak was revealed. The affected junction was repaired and fully-controlled hydraulic tests were conducted. Potential leaks were revealed in other places. The production was stopped and thorough examination was launched.

Immediately after the first leak, the consortium organized a special group of experienced professionals, including the experts of KazMunaiGas national company, who began to conduct the inspection and initial analysis. This group is still operating. Besides the repair operations, the excavation work on the pipeline sections were carried out to reveal the visual signs of potential leaks.

The consortium continues cooperating with Kazakh state bodies during the inspection process. According to the Kazakh regulatory requirements, the relevant bodies are regularly informed about the progress.

On Nov. 13, Minister of Environment and Water Resources, Deputy Minister of Oil and Gas, Deputy Minister of Industry and New Technologies and Akim (governor) of Atyrau region of Kazakhstan examined the earthwork to become familiar with their progress and discuss their status.

Some damaged parts of the pipeline were sent to Cambridge (TWI Laboratories) in England, where they discovered the bursts were caused by sulfide compounds.

Damage occurred when the solid steel was subjected to H2S high concentrations with water, leading to microcracks in the steel. H2S content in Kashagan field reserves is among the highest in the world.

The composition of steel for the pipeline, the construction methods and pipeline laying were specially prepared taking into account H2S high content with water and approved by the country as suitable for this pipeline.

The consortium is currently working with suppliers of pipelines to determine the cause of the incident. The biggest oil and gas companies are using their services. The investigation continues in the laboratory, where the materials science experts are examining the pipe connections to determine the main cause of leaks. Some tests take several weeks. It is expected that the final report will be submitted after all laboratory tests are over and the results are obtained.

The consortium is committed to the safe launch of the project. The integrity of facilities has been given the highest priority. Although no gas leaks were observed in offshore gas pipelines or oil pipelines, the consortium decided to fully inspect both pipelines to ensure a 100 percent integrity of the facilities until the production is resumed.

One of the best methods of pipeline inspection is the so-called "diagnostic pig control". The various sensors (robots) are used in the pipeline to inspect inside (the length of both pipelines is approximately 90 kilometers). The purpose of "diagnostic pig control" is the mapping of the defects revealed in the pipes. This method requires emptying of pipelines and their further cleaning to get accurate results. Once the diagnostic pig control operations are complete, thorough analysis and data interpretation will be conducted and the appropriate conclusion will be made. The final results will be ready in early 2014.

Earthwork is being conducted at large sections of the ground-based oil and gas pipelines as an additional measure to reveal potential problems. This allows visually inspecting the pipes from the outside.

So far, they have not found any abnormality in the pipeline, but other points on the onshore pipeline cast doubt upon visual inspection and will require diagnosis for a final conclusion on integrity.

Pressure in the offshore gas pipeline was maintained for several weeks with careful monitoring throughout this period. No sign of leakage, such as reduction of pressure, was detected in the offshore section of the pipeline. Despite the fact that the excavation work has been completed, the results can not be considered exhaustive.

Discussion of corrective measures, timelines for their implementation as well as prediction of the dates of resumption of production may be held only after determining the main causes of defects and their extent. The dates will be announced only after clarification of the situation and its coordination with relevant state bodies in Kazakhstan.

The consortium applies the best global practices in the exploitation of oil fields taking into account the most stringent requirements in the field of protection of health, labor and the environment for solving problems, mitigating their consequences, taking corrective actions and resuming production.

Tengiz

The Tengiz field is one of the largest in the world.

It is being developed by Tengizchevroil. The licensed area of the project includes the Tengiz field and Royal field which is smaller, but has significant reserves.

Its shareholders are the KazMunaiGas national company (20 percent), Chevron Overseas (50 per cent), ExxonMobil (25 percent) and LukArko (5 percent).

Tengizchevroil produces several types of end products from raw materials. It is mainly stabilized oil. Dry gas, propane and butane are produced from associated gas. Moreover, sulphur, extracted from the hydrogen, is produced. The sulphur content in the Tengiz oil is high.

As of 2010, the production volume reached 26 million tons.

In 2012, oil production was 24.2 million tons (193 million barrels). Actual oil production in TCO was 3.7 percent below the target figures of the business plan. This is mainly due to limitations in the transportation system (which is out of TCO's control), malfunctioning due to weather conditions and reliability of plant equipment of Sour Gas Injection (SGI) and Second Generation Plant (SGP).

Overhaul of SGP / SGI equipment was held successfully. TCO provided record levels of production after the overhaul. In 2012, the sale of liquefied petroleum gas amounted to 1.2 million tons, while the sale of dry gas to 6.2 billion cubic meters. The company sold 3.5 million tons of sulphur, which is 69 percent more than the 2.1 million tons produced in the same period of 2011. Successful sale of sulphur allowed TCO to reduce the amount of its reserves on the sulphur maps in Tengiz to 2.6 million tons as of Dec. 31, 2012.

Most of the oil from the field is transported by the Caspian Pipeline Consortium. In 2013, transportation of Tengiz oil via Baku-Tbilisi-Ceyhan was restored.

Project status:

In November 2013, the Kazakh government and Tengizchevroil LLP (TCO) signed a Memorandum of Understanding (MOU) that sets out mutual commitments to further TCO's plans to increase production of Kazakhstan's Tengiz field.

The project envisages the increase of oil production in Tengiz field from 26 million tons to 38 million tons of oil per year.

The MOU signing is an important milestone on the path to a Final Investment Decision for the project by TCO partners.

The MOU aligns the Government of Kazakhstan and TCO on the pursuit of common goals in the development of TCO's Future Growth and Wellhead Pressure Management Projects (FGP and WPMP); and outlines tasks to be executed by the signatories in order to execute FGP and WPMP.

FGP will utilize sour gas re-injection technology used in existing operations to expand production capacity by approximately 12 million tons per year.

Through installation of a central pressure boost facility, WPMP will maintain the volumes and pressure of crude oil delivered by the existing crude oil processing plants. The projects are currently completing the front end engineering and design (FEED) phase.

An oil stabilization plant with capacity of 12 million tons per year, accompanying power units and auxiliary systems will be constructed as part of the implementation of the Future Growth Project (FGP).The raw material will be delivered to the plant through the ring main of the new oil collecting system.

All the associated gas will be injected back into the reservoir with several sour gas injection compressors. As a result of the new project, the recoverable reserves of Tengiz will increase by 100 million tons. Recoverable oil reserves at the field's collector will range from 750 million to 1.1 billion tons (6-9 billion barrels). The total proven reserves of Tengiz amount to three billion tons (26 billion barrels) and the total proven reserves of the Royal field to 190 million tons (1.5 billion barrels).

Cost of the Future Growth and Wellhead Pressure Management Projects including construction of FGP, WPMP and the drilling program is estimated at nearly $20-25 billion with completion scheduled between 2017 and 2019.

The Tengiz oil field, opened in 1979, is one of the deepest and largest oil fields in the world. The width of the collector is 19 kilometers (12 miles) and the length is 21 kilometers (13 miles).

In spite of technological problems, industrial oil production began in 1991 with commissioning of the Tengiz oil and gas processing plant and enterprise on April 6. Two years later, on April 6, 2013 Tengizshevroil LLC was created based on an agreement between Kazakhstan and Chevron.

Oil production at Tengiz has increased by almost 26 times since operations commenced. Today this field provides about 30 percent of domestic oil production.

Following the completion of FGP, major volumes of Tengiz oil will be transported via the Caspian Pipeline Consortium (CPC) and the remaining volumes through more beneficial routes.

Nearly 30 million tons will be sent for export via CPC and the remaining eight million tons will be transported either via Baku-Tbilisi-Ceyhan, the Taman port in Russia, or though the Kazakhstan -China pipeline in China.

The implementation of the Future Growth Project at Tengiz will begin in 2014. The oil that must be produced with the launch of the Future Growth Project (FGP) at Tengiz, will be available no earlier than 2019.

Karachaganak

Karachaganak has reserves of 1.2 billion tons of oil and condensate and over 1.35 trillion cubic meters of gas and is one of the largest oil and gas condensate fields in the world. The main part of the extracted volume of liquid hydrocarbons is exported through the CPC pipeline system. Small volumes of Karachaganak oil are sold through the Atyrau-Samara pipeline.

Some of the unstable gas condensate is sent to the Orenburg gas processing plant. Other volumes of unstable condensate are supplied to the Kazakh low-tonnage oil mini-refinery Condensate JSC

About 40 per cent of the extracted gas is pumped back into the reservoir for the partial restoration of pressure in the reservoir. The remaining volumes of sour gas are delivered to the Orenburg gas processing plant for purification and further export through the Russian pipeline system. The purified gas is then used on the field for its own use.

According to the terms of the contract, a certain volume of purified gas for local use is envisaged to be supplied to the Burlin district in the West Kazakh region.

In terms of operation, Karachaganak is one of the most complex fields in Kazakhstan. Currently 96 producing and 16 injection wells are being operated at the Karachaganak field, with general wells totalling 377 units. In 2012, Karachaganak Petroleum Operating B. V. (KPO), which develops the field, conducted complex works on drilling and completion of several wells with high flow of liquid hydrocarbons. 2012 saw the greatest amount of wellhead connections in the history of the Karachaganak's development.

The company fully supports the Kazakh government's initiative on transition to a "green economy". In 2012 the flaring of gas totalled only 0.13 percent of the total volume of produced gas, or 0.78 tons per thousand tons of extracted raw materials. Comparison of these figures with corresponding average figures of the world and European oil and gas companies demonstrates the KPO's leadership in this area.

At present, nearly 45 percent of all gas and 16 percent of all liquid hydrocarbons produced in Kazakhstan are extracted in Karachaganak.

Now the project is at the Phase 2. A production level of 11 million tons of liquid hydrocarbons and 14-15 billion cubic meters of gas per year has been reached.

Since the beginning of the final production sharing agreement's effect, investments amounted to about $17.02 billion. With the start of the project's realization the total income in Kazakhstan's budget amounted to about $17.78 billion.

In 2012, the KPO produced 139.5 million barrels of oil equivalent of stabilized and unstabilized liquid hydrocarbons, gas and fuel gas. The volume of gas injection for maintaining reservoir pressure stood at 8.6 million cubic meters, which roughly corresponds to 49 percent of the total volume of the produced gas.

Project status:

On Dec. 14, 2011 the Karachaganak, consortium developing the field, and the Kazakh Oil and Gas Ministry signed an agreement for Kazakhstan to join the Karachaganak project.

After nearly two years of negotiations Kazakhstan got its 10 percent stake in the project.

The share in the Karachaganak project after the Kazakh national company KazMunaiGas' (KMG) joined was distributed as follows: BG - 29.25 percent, Eni - 29.25 percent, Chevron -18 percent, LUKOIL - 13.5 percent and KMG - 10 percent.

According to forecasts of Kazakhstan's Ministry of Oil and Gas, the country will receive about $3.3-5 billion between 2012 and 2037 from its share in the Karachaganak project.

In the first half of 2013, the Karachaganak Petroleum Operating B. V. (KPO) produced 66.934 million barrels of oil equivalent of stabilized and unstabilized liquid hydrocarbons, gas and fuel gas. The volume of gas re-injection for maintaining reservoir pressure was 3,948 billion cubic meters, which corresponds to approximately 47 percent of the total volume of produced gas.

In the first half-year the gas utilization indicator at Karachaganak amounted to 99.86 percent, which is a world-class achievement. Karachaganak project partners invested about $17 billion in the field's development. In the first half of 2013, the volume of gas flaring totalled 0.14 percent of total produced gas, or 0.82 tons per thousand tons of raw extracted materials.

"N" project (Nursultan)

The 'N' block is located in the Caspian Sea, 30 kilometers south-southwest of the city of Aktau. The area is about 8,100 square kilometers. The limited liability partnership to be established in Kazakhstan will be the operator of the project. It will be owned by all project participants in proportion to their shares in the subsoil agreement.

Project status

The first exploration well (R-1) was drilled in the Rakushechnoye-Sea structure. The first confirmation of the presence of hydrocarbon resources was obtained. The exploration work is conducted in full compliance with the working program. The participants of the project expect them to continue successfully. According to the state bodies' estimations, the site is highly prospective for oil and gas.

Previously, 51 percent interest in the subsoil use contract was owned by JSC NC KazMunaiGas, whereas the rest of shares totalling 49 percent were owned in equal shares by ConocoPhillips and Mubadala companies. On January 25, 2013, JSC National Company KazMunaiGas (KMG) and the ConocoPhillips Petroleum Holdings B.V. finalized the deal on acquisition of 100 percent of the N Block B.V. company. KazMunaiGas acquired a stake in American ConocoPhillips for $32.5 million.

As a result of this deal, the KMG became the owner of 75.5 percent of subsoil use rights in the "N" project and 75.5 percent stake in "N Operating Company LLP".

According to the contract on subsoil use in "N" project, the project participants include the KMG with a share of 75.5 percent and MDK (Oil & Gas N Block Kazakhstan) GmbH with a share of 24.5 percent.

The increase of KazMunaiGas' share in the "N" project demonstrates systematic action to strengthen the role of the company in offshore exploration projects in the Kazakh sector of the Caspian Sea.

The "N" project is implemented in accordance with the Production Sharing Agreement No. 2546 dated Dec. 29, 2007, converted on May 29, 2009 into the contract for exploration and production of hydrocarbons in the "N" section and its supplements.

Under the structure of Rakushechnoe-Sea, the transition to the stage of evaluation work has been made. The Kazakh Ministry of Oil and Gas has been notified of potential revealing hydrocarbons as a result of exploration work at the Nursultan structure. The "N Operating Company LLP" was established for the implementation of the N project.

Satpayev project

The Satpayev site is located in the northern part of the North Caspian shelf. It includes three promising structures: Satpayev, Satpayev Eastern, Karina. The forecasted recoverable resources at Satpayev site hit 253 million tons of equivalent fuel. KazMunaiGas and ONGC Mittal Energy signed the agreement on the principles of cooperation on the Satpayev project. The agreement reflects the basic principles of future cooperation between the companies within the Satpayev site development project in the Kazakh sector of the Caspian Sea. Satpayev block is being developed by KMG and the Indian national oil company ONGC Videsh Limited (OVL) with stakes of up to 35 percent.

Status of the project

Satpayev blocks are at the primary stage of exploration. Nevertheless, the significant volumes of hydrocarbon reserves are expected to be confirmed as a result of this work.

Dead Kultuk project

Dead Kultuk is located in the transition zone from shallow waters of the Caspian Sea to the territory of Komsomolets gulf and the surrounding areas on the east coast of the Caspian Sea. The area, where this block is located, is one of most promising for oil and gas production in Kazakh sector of the Caspian Sea. In 2008, some 50 percent of rights on using subsoils in contract on exploration and production of Dead Kultuk block in the Caspian Sea were transferred by KazMunaiGas to Caspian Tristar (a group of Kazakh investors).

Status of the project

The exploration operations are being conducted within the project.

Pearl project

Pearl is a oil and gas project in Kazakhstan. It is located in the Kazakh sector of the North Caspian Sea, in 80 kilometers to north-east of the port of Bautino, Mangistau region.

The field is located in Kazakhstan's offshore zone at a water depth of 5 to 7 meters. The four promising structures include Khazar-1, Khazar-2, Auezov, Naryn and Tulpar. Major prospects of oil and gas reserves of the structure are associated with the Jurassic sediments.

According to Kazakh geologists, the Pearl oil and gas project is estimated at 100 million tons of oil. KazMunaiGas (KMG) (25 percent), Shell (55 percent) and Oman Oil (20 percent) work on the Pearl site.

Status of the project

The participants of the project are preparing the concept of the field's development. According to the results of exploratory work, oil and gas reserves at Khazar and Auezov structures were proved. KazMunaiGas JSC officially confirmed the existence of oil in the area of "Pearl" on Oct.2, 2007. The first oil from the Pearl block is expected to be produced in 2016

Four structures are being investigated at the "Pearl" block. Shareholders got oil from three wells at two structures - Auezov and Khazar. Two exploration wells and one appraisal well have already been drilled. According to preliminary data, the "Khazar" field can be classified as a medium-sized, profitable field under these conditions. Inflows of industrial oil have been received from several reservoirs both at "Auezov" and "Khazar".

The project is being implemented in accordance with the agreement signed on May 31, 1993 between the governments of Kazakhstan and Oman. Kazakh Ministry of Energy and Mineral Resources, KazMunaiGas JSC NC and Oman Pearls signed a PSA for the Pearl project. Further, Oman Pearls and Shell signed a relevant agreement on the transfer of a share in the project. Additionally, KazMunaiGas JSC NC, Oman Pearls and Shell signed a Joint Activity Agreement on the development of the "Pearl" structure in which the parties determined the mutual rights and obligations on the implementation of the project.

Zhambyl block

The Zhambyl block is being developed by KazMunaiTeniz company a "subsidiary" of "KazMunaiGas" national company and the Korea National Oil Corporation (27 percent).

Status of the project

The Zhambyl block is at the initial stage of exploration. Nevertheless, the significant volumes of hydrocarbon reserves are expected to be proved as a result of the conducted operations. KazMunaiGas JSC NC is holding negotiations with a group of Korean companies on the Zhambyl block.

Abay block

The Abay block is located in the Kazakh section of the Caspian Sea, in 60-70 kilometers to the north-west coast of the Buzachi peninsular. The water depth is 8-10 meters. The geological reserves of hydrocarbons in the Abay block are estimated at 337 million tons of oil equivalent.

Status of the project

Statoil notified the Kazakh Ministry of Oil and Gas of its decision to withdraw from the Abay project in the Kazakh sector of the Caspian Sea on Feb.11, 2013. KazMunaiGas and Statoil signed an agreement on the principles of cooperation on the Abay block in March, 2011. Meanwhile, Statoil undertook all the expenditures at the exploration stage.

Urikhtau block

The Urikhtau gas condensate field is located in the Aktobe region. KazMunaiGas has a 30-year contract for the exploration and production of hydrocarbons at this field. It was signed in December 2008, according to the results of direct negotiations with an authorized body.

The initial geological reserves of free gas amount to 39.815 billion cubic meters of condensate (11.623 million tons), oil - 6.493 million tons, and the dissolved gas - 2.389 billion cubic meters at the Urikhtau field. They were approved by the USSR State Reserves Committee (SRC protocol number 10526, October 28, 1988 ).

Status of the project

KazMunaiGas national company discovered fields at the Liman and Urikhtau blocks in 2010 and 2011. Currently, their supplementary exploration is underway.

A deep well is being drilled at the Urikhtau block. Plans are to drill a well at a depth of 5.5 kilometers at the Uzen-Karamandybas field. The drilling will tentatively begin in May 2014. Currently, a search for a rig is underway.

Darkhan oil and gas field

The Darkhan oil and gas field is located in the Kazakh sector of the north Caspian Sea. Its geological reserves could hit 480 million tons of oil equivalent. It is located 11 kilometers west of the Buzachi peninsula and 60 kilometers south of the port of Bautino. The water depth where the work is being carried out is three-five meters.

Status of the project

The Atyraumunaygaz will drill a subsalt well at a depth of 6,000 meters in the Caspian Sea section of Makhambet in 2014. This is the extreme western part of the so-called Kashagan-Tengiz area. At this point, there are favorable conditions for discovering oil deposits. Atyraumunaygaz is a subsidiary of the Chinese-Kazakh company Mangistaumunaigas. It has the license for the Makhambet and Bobek sites in the northern part of the Caspian Sea.

Khvalynskoye and Central blocks

Kazakhstan and Russia laid a border between their sectors of the Caspian Sea in 2002 and determined three border structures: Kurmangazy, Khvalynskoye and Central. The reserves of the Khvalynskoye are estimated at 332 billion cubic meters of natural gas, 17 million tons of gas condensate and 36 million tons of oil. The necessary volume of investments is $1 billion. The resources of the Central structure are forecasted to be $ 521 million tons of fuel equivalent.

Kazakhstan estimates the recoverable oil reserves of Kurmangazy at 0.9-1 billion tons. At the same time, the volume of necessary investments required for full development of the field can be around $ 10 billion, according to the preliminary estimates.

Status of the project

The development of the Khvalynskoye and Central blocks is being carried out by KazMunaiGas, in partnership with Russian companies such as Gazprom and Lukoil.

Russia and Kazakhstan have included the signing period of an agreement on Khvalynskoye field (till the end of 2013) in the joint action plan. In addition, the parties agreed to give the KazMunaiGas JV and Gazprom a short-term license for supplementary exploration by late 2013.

To date, TsentrKaspneftegaz has had a license for geological exploration of the Central structure. The shareholders of this company are Lukoil and Gazprom on equal terms. However, the license has expired.

Initially, Russia and Kazakhstan expected that they would receive a license for the Central by the end of 2013. But recently, the Minister of Natural Resources of Russia Sergey Donskoy said that the positions between the Foreign Ministry and the federal bodies of the executive power are being clarified. A decision will be submitted to the government by late 2013, with adoption expected in the first quarter of 2014.

Translated by N.H, M.L., E.A., L.Z.

Edited by C.N.