Oil and Gas Production at Last
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The Kashagan field in the Caspian Sea is set to finally begin production sometime in mid 2013, more than a decade after the industry discovered oil and gas here. This field is a prime example of the increased difficulty in developing large scale oil and gas resources.
Overview
The Kashagan field is located in the Caspian Sea with oil and gas present at depths of approximately 13,800 feet. The field is one of many other potential oil and gas deposits in the area and is governed by the North Caspian Sea Production Sharing Agreement (NCSPSA). The field is estimated to have 38 billion barrels of original oil in place and recoverable oil reserves of over 16 billion barrels.
Oil and gas resources were first discovered at the Kashagan field with the Kashagan East-1 well in 2000, followed by the Kashagan West-1 well in 2001. The consortium then drilled a number of appraisal wells to delineate the field and made additional discoveries of oil and gas at Kalamkas, Kashagan South West, Aktote and Kairan.
Development Issues
The development of oil and gas resources at Kashagan is complicated by the environment present in the northern part of the Caspian Sea, including harsh winter conditions with temperatures as low as -20 degrees Celsius. The Caspian Sea also has ice floes for part of the year, which can cause damage to drilling platforms and other infrastructure.
The reservoir at Kashagan is highly pressurized and has a high natural gas to oil ratio. Most of this natural gas, which has a high content of hydrogen sulfide or sour gas, will be re-injected into the field to enhance recoveries.
Development
The Republic of Kazakhstan formed the North Caspian Operating Company B.V. (NCOC) in late 2008 to act as a joint operating company to handle the development of the Kashagan field. The NCOC replaced Agip KCO, which was the original operator designated in 2001.
The NCOC is working on a three phase development plan at Kashagan with the consortium building artificial islands to drill wells, along with pipelines and processing facilities needed for processing and transport. Phase one of the project is expected to produce 370,000 to 450,000 barrels of oil per day.
Shareholders
The potential of the Kashagan field is reflected in the list of major integrated oil companies that own a share here. ExxonMobil ), Eni (NYSE: E), Total (NYSE: TOT) and Royal Dutch Shell -B) each own a 16.81% share, while ConocoPhillips (NYSE: COP) holds an 8.4% ownership stake.
KazMunaiGas, the state owned oil and gas company of the Republic of Kazakhstan, also holds a 16.81% share. The final participant at the Kashagan field is INPEX Corporation, which owns 7.56% of the NCOC. INPEX Corporation is a Japanese energy company involved in various liquefied natural gas (LNG) projects and other areas of the energy business.
Discontent
Many of the public companies involved at Kashagan are not happy with the pace of development and the rising cost this project. ConocoPhillips has indicated its intent to sell its share of this project as the company focuses on other areas of its portfolio. The company recently shed its downstream assets into a separate independent public company and is focused on North America and other areas. ConocoPhillips has also pledged to divest tens of billions worth of oil and gas properties over a three year period.
ExxonMobil and Royal Dutch Shell are agitating for a larger ownership stake in the project and an extension of the NCSPSA before embarking on further expansions at the field. Phase II of the project is expected to be delayed until at least 2018 or 2019.
The Kashagan field may be the poster child for the increased difficulty and cost of oil and gas exploration and development in the modern era and may also be contributing to the flight back to North America by the major integrated oil companies.
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