Karachaganak third development phase to cost $14.5 billion - KMG head

energy

Karachaganak third development phase to cost $14.5 billion - KMG head

By SRI ⋅ January 26, 2010 ⋅

(SRI) - The third phase of development of Kazakhstan’s Karachaganak gas condensate field will cost about $14.5 billion, KazMunaiGas CEO Kairgeldy Kabyldin told the government last week.

“If the expansion is implemented in full, Karachaganak Petroleum Operating (KPO), the venture that operates the onshore Karachaganak field, will boost output to 16.5 million metric tons a year,” Kabyldin said in a speech that was posted on the company’s Web site on Monday.

According to Kabyldin, Karachaganak Petroleum plans to produce 11.3 million tons of oil this year at the field, down from 11.9 million tons in 2009. Gas output at the field will fall to 14.7 billion cubic meters in 2010, down from 15.6 billion cubic meters last year, he said.

The projected cost presented by Kabyldin significantly exceeds the long-held estimate of $8 billion.

U.K.’s BG Group and Italian Eni SpA are the largest shareholders in KPO, each with a 32.5 percent stake, while U.S.-based Chevron Corp. has a 20 percent interest and Russian Lukoil 15 percent.

According to industry sources, BG and Eni are currently negotiating with KazMunaiGas, the national oil and gas company, the possible sale of a 10-percent stake in the project for $1 billion. No party involve in the talks officially commented on a possible deal but talks that KPO may offer a stake to the government have been surfacing periodically, since KPO is the only major oil and gas project in Kazakhstan without Kazakh participation.

The news of these talks came following the announcement that KPO has sought to recover more than $1 billion in export duties from the state. KPO has disputed the application of the duty, which had been introduced in May 2008, since the project operates under a Production Sharing Agreement (PSA) that shields it against adverse tax changes. The duty was annulled in January after oil prices slumped.

The partners estimate they have pumped about 6 percent of the field’s total hydrocarbons. Karachaganak holds more than 1.2 billion tons of oil and condensate and more than 1.35 trillion cubic meters of gas, according to the project’s Web site.