KazMunaiGas proposes cutting Kashagan costs by $3 billion in 2010

energy

KazMunaiGas proposes cutting Kashagan costs by $3 billion in 2010

By SRI ⋅ January 20, 2010 ⋅

(SRI) - The 2010 budget for the development of the Kashagan field in Kazakhstan could be cut to $7.4 billion from an earlier plan of $10.4 billion, Kazakh state oil and gas company KazMunaiGas (KMG) proposed last week.

“This year’s budget is about $10 billion,” KazMunaiGas CEO Kairgeldy Kabyldin told a government meeting. “…We have proposed to cut it by almost $3 billion by optimizing expenditures.”

While Kabyldin gave no reason for the cut and provided no further details, the move follows a similar announcement in July 2009 that the budget for the first development stage would be cut by $1 billion to $32 billion. At that time, Kabyldin said that total costs could be cut by as much as 30 percent.

The North Caspian Operating Co., the consortium developing the field which comprises of France’s Total SA, U.S.-based ExxonMobil and ConocoPhillips, U.K.’s Royal Dutch Shell, KMG, Italy’s Eni SpA, and Japan’s Inpex, had originally planned to spend about $10.4 billion this year.

The development of the giant offshore field has been plagued with delays and cost overruns due to technical difficulties and disputes between the government and foreign firms over management and profit distribution. Only last November, the two sides signed an agreement to finalizing the equity stakes of each participants and the final budget. Beginning of commercial production at the field was set to start in late 2012.

The consortium has reportedly spent $28 billion between 1997 and 2009, including $6.2 billion last year. The total estimated cost of the project is $136 billion.