Kashagan: a lighthouse for investors

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altIgor Ivakhnenko
At the biggest oilfeld in the Caspian region - Kashagan - full swing preparing for the start of commercial production is going on. Goal of this project - production of 1.5 million bbl / day, which is one and a half times as bigger than the entire production on the Caspian shelf at the moment. However, the value of the Kasha-gan goes far beyond even this giant project. International companies are looking at it as a landmark of commercial opportunities in the stormy sea and operational risks of the Caspian Sea. And it seems that the closer the time of receipt of the Kashagan oil, the more investors want to get on the Kazakh shelf.

The interests of companies from different parts of the world came together in one place, most likely for two reasons. Firstly, there are fewer available resources perspective in the global market of hydrocarbon assets, which enhances their value in a more stable way than the prices of futures contracts. Secondly, the largest oil and gas project in the Caspian region - the development of Kashagan - demonstrates the successful development. For investors, the experience of "veteran" who started business from seismic poorly studied area, is one of the most weighty factor in deciding on investment.

Oil megacity. Kashagan, located in the northeastern part of the Kazakh shelf, is mastered with International North Cas-pian consortium (NCC) of seven companies, including the KMG. (See the «Magnifcent Seven»).
With amount of its resources, Kashagan is one of the world's largest hydrocarbon reservoirs. Its geological oil reserves are 4.85 billion tons and recoverable oil reserves are estimated in the range of 1.47-1.64 billion. Reserves of liquid hydrocarbons which volume is close to 1 billion tons also supplements condensate.
This mixture that bubbling with tempera-ture up to 110-120 degrees Celsius can be called a kind of fuel "soda" because 800 billion cubic meters of gas with high sulfur content - more than 15% dissolved in Kashagan oil. (Gas is a problem for the Kashagan also being the key to its development). Gigantic reserves of mine has an adequate amount of terrestrial space. Productive horizons situated here at a depth of 4200 m, and the size of their thickness exceeds 600 m. Add to the picture area of the Kashagan feld, which, according to the shareholders, is 75*45 km or more than 3300 square km. And it becomes clear that in its size feld is larger than the territory of some countries in  the world and, at least, looks like an oil "metropolis" of production with its "skyscrapers," fshing "neighborhoods", transport routes and other infrastructure. In the language of numbers, this means that 240 wells has to be drilled at Kashagan, of which 188 operational, and the rest - the injection for gas reinjection. This feld infrastructure will focus on more than 30 islands of drilling and production, combined with upstream pipelines with six operational technological complexes (OTC). The capacity of each of them will be 35 thousand tons per day, and the total - up to 75 million tonnes per year.
Production technology is such that the extraction of oil from the islands mixture will come to the OTC, will separate and then forwarded to the bank for the installation of an integrated oil and gas treatment Bolashak. The resulting gas will be mostly re-injected to minimize sulfur recovery, and to maintain reservoir pressure in the future. And to some extent - come to a recycling plant in the village Karabatan to be used after puri-fcation in energy project, as well as in total exports of goods Kashagan, as well as sulfur. Theoretically, the bowels should be injected at different stages of development from 50% to 80% of produced sour gas. The overall outcome of these efforts for the entire period of feld development, which in the North Caspian PSA is scheduled in 2041, should be the extraction of 1.424 billion tons of oil and 87 billion cubic meters of marketable gas.

Step by step. In order to get a pie NCC members intend to move forward step by step, each of which provides increased production capacity and technological burden on the region of production. Phase I development consists of several queues combined by technological and industrial principle, end point of which should be the output of the production level of 450 thousand barrels per day. Phase II involves reaching milestone of 1.5 million barrels per day. For the implementation of each phase NCC has its own operator. Agip KCO (a daughter of Italian Eni) is responsible for Phase I. Phase II implementation operator is North Caspian Operating Company (NCOC), which includes all members of NCCM, but not every participant has its own area of responsibility. Eni is responsible for ground targets, drilling operations oversees ExxonMobil (USA), the creation of offshore infrastructure and basic engineering - Shell (UK / Netherlands). ConocoPhillips (USA) is responsible for internal audit of the project, and France's Total is the management company.
In addition, KazMunaiGas along with Shell is a joint venture - North Caspian Production Operations Company BV, which has the status of agency companies NCOC, authorized to conduct mining operations and maintenance. This joint venture will operate production in NCC at all subsequent stages. Complicated control scheme of the project involves, on the one hand, the appreciation of the desire of almost all shareholders to play an operating role. And, on the other hand, the unique scale of the tasks assigned to the North-Caspian project. In order to be solved, they must be distributed to curators and stages.

Master-class Project. A phased approach to the development of Kashagan facilitates the achievement of several goals. From an economic point of view, this tactic allows the timing of investments, and the approximation of the receipt of proft oil, for up to pay-back the main portion of the proceeds from sales goes to the compensation. In terms of environmental safety gradual increase of the intensity of oil operations reduces the stress of the environment and environmental risks.
And fnally, the project participants, carrying out step by step, get the precious experience of technology development of the feld, and the ability to apply developments and avoid the mistakes of earlier stages in the implementation of subsequent phases of development of Kashagan. Central here is probably the issue of gas injection: a number of injection wells on the sea-salt mine -a unique case in the global oil industry. In Tengiz – with a similar geological conditions - to minimize the risks, new injection wells are constructed only after working process in the previously drilled shafts. Here two wells were drilled frst, and then six more and plans to build 20 new only by 2017. At the offshore Kashagan rate technological safety even higher. The nature of the answer to the question of how to react to the subsoil layers and re-injection, to a large extent depend the prospects and development of the feld. Now at Kashagan Phase I preparation is going on, which includes receiving the frst commercial oil in late 2012. For this there has to be drilled 20 wells, built several drilling islands and an OTC, a transport, processing and other infrastructure. This winter has not prevented the development of the project, as has happened in previous years, and now the results look quite noticeable. Artifcial islands A and D are built, from which have been drilled, respectively, eight and ten wells. At A ready to use the local hardware, fare and the manifold, the D has multiple modules for oil and two - for gas reinjection. Flowlines and tube racks are also ready, as well as connecting lines to the main systems on land, the construction of Karabatan is due to end.

If at Kashagan everything will go according to plan, in 2012, a consortium will produce almost 0.57 million tons of oil. A year later, production will rise to 9.12 million, in 2014 will rise to 13.24 million tonnes, in 2015 - up almost to 15 million. Increase in production will provide two lines of work: drilling of new wells (13 in 2013-2014 years), and injection of 50% of the extracted gas. While not as a way to enhance oil recovery, but as a means of disposal of hydrogen sulfde impurities that impede commodity production of oil. At the same time year 2015 has to become a landmark for the development of Kashagan. Although the annual volume of production during his rise slightly, more than doubling of production well stock is planned- it will increase to 67 units. And the end of 2015 production levels will reach 450 thousand barrels / day, which marks the realization of fsheries, commercial and technological objectives of Phase I. The way they will be resolved at this stage, will largely determine the future course of development of Kasha-gan. And also becomes a kind of "master class", which Kashagan operator will hold for members of other marine projects.

altKashagan is paving the way. The second half of this decade looks qualitatively as a new stage for development of Kashagan, and to develop the oil resources of Kazakhstan's sector of Caspian Sea. If Phase II will be im-plemented according to plan (see «Partners are discussing the price»), then from 2016 to 2020 oil production at the feld will increase from 28 million tonnes to nearly 60 million, which requres 75 wells to be drilled. In the longer term, i.e. over the next decade, the shareholders will build 93 more wells, and will raise annual production to 75 million tonnes Starting from 2016, the development will include the new felds of Kazakhstan shelf - frst Kairan, in 2018 - Aktoty and Ka-lamkas-sea (subsoil user for all - NCC), in 2019 - Khazar, in 2020 - Auezov (a consor-tium of EP, Shell, Oman Oil), Shell sea and H (Alliance KMG, ConocoPhillips and UAE Mubadala Development Co.). In the next decade may other marine projects in Asta-na, including those agreements which were signed this spring - "Abay", and "Satpayev, may enter into the production stage. But it is likely that marine subsoil users in Kazakhstan, building their business models, will scrutinize not only the production experience of NCC at Kashagan, but also sales policy and the consortium as a guide when choosing their own export routes. Rep-resentatives of the NCC previously stated that for Phase I they believe in the priority of the North-Caspian pipeline (better known as CPC) and Atyrau - Samara. The frst one starts phased expansion of capacity from 28 million this year to 67 million tonnes in 2015, the second can at any time to increase pumping from 15 million to 17.5 million tons per year.
However, the interesting thing is that the consortium (reported by sources close to it), also began to study options for export by pipeline Kazakhstan - China, whose capac¬ity after 2013 will double to 20 million tons; and of the Kazakh Caspian oil transporta¬tion system required after the start of Phase II.
Certainly, export "pressure" of Kashagan oil greatly help the progress of new pipeline projects in various areas of Astana. And thus pave the transport routes for the next wave of marine operators. Kashagan "pioneer" on the shelf will be a guide for them in the ex-port of Caspian hydrocarbons.



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