KAZAKHSTAN-CASPIAN -RUSSIA
WHEN ECONOMY LAGS BEHIND POLICY
A Break-through in the Caspian
Almost a year has already passed since the day of May 13, 2002, when the Presidents of Russia Vladimir Putin and Kazakhstan Nursultan Nazarbayev signed a protocol to the agreement between Russia and Kazakhstan "On Delimitation the Caspian Sea Bed in the Northern Part to Realize the Sovereign Rights for the Seabed Usage of June 6, 1998". The Protocol contains geographical co-ordinates of realizing the modified medium line that delimits the seabed leaving the water column in common use. According to the protocol Kurmangazi field is under the jurisdiction of Kazakhstan, while the Tsentralnoye and Khvalynskoye fields are under Russian jurisdiction, but they are to be developed jointly by Russian and Kazakh partners. As the Russian President said, the document is "a break-through in the Caspian cooperation". After the summit in Ashgabat Russia and Kazakhstan were the first to reach juridical agreement determining the principles of Caspian division, Putin emphasized. The principle of this delimitation, he said, was "bed divided, but water column remains in common use".
As the Russian leader told then, it is a serious event in the relations between Moscow and Astana, which will have a positive effect for our partners in Europe and North America, causing interest among all consumers of the energy resources. President Nursultan Nazarbayev noted that both Kazakhstan and Russia werre the first to reach agreements on mastering the resources of the sea-bed, and the fact confirms again the aspiration of both countries towards the progress of strategic cooperation.
President Nazarbayev named the document as "the greatest agreement", which Kazakhstan signed in the frame of CIS and in mutual relations with Russia.
Almost four years passed since the Protocol was agreed and the Agreement was signed. During this time each of the partners developed their oil projects in their shelves, including the geological structures belonging to the offshore area of both countries. Among them are the Khvalynskoye, Tsentralnoye and Kurmagazi fields.
The LUKOIL OSC published the results of the wide scale geological and geophysical studies in offshore Caspian basin in May 2002 realized by the Company since 1995. The total area of the exploration has been more than 63,000 sq.km.
The results obtained enabled to appraise the total predicted recoverable reserves of the hydrocarbons of the Triassic, Jurassic and Cretaceous oil and gas bearing structures of the licensed area of Severniy Company is 834 mln tons of equivalent fuel (e.f.), including 269 mln tons of oil and 484 bln c/m of gas, 38.6 mln tons of condensate and 42 bln c/m of associated gas. And a greater part of them is bound with Jurassic and Cretaceous sediments. On two licensed areas of the Central Caspian arch (Central and Yalama-Samur ones)the predicted recoverable resources of the hydrocarbons are estimated in 1.1 bln tons of e.f. , including 121.6 mln tons of oil, 874 bln c/m of gas, 77 mln tons of condensate. The estimation of the recoverable resources of the whole Russian sector of the Caspian are: 4.5 bln tons of e.f. , including 1.06 bln tons of oil, 3.07 trln c/m of gas and 240 mln tons of condensate.
The prospected reserves enable to start recovering hydrocarbons in 2005-2006 and keep the gas output at the level of 10 bln c/m and the oil output at the level of 4 mln tons of oil a year within the period of 15 to 20 years. Taking into account the forecast estimations and realization of the program of geological prospecting in full scale the output can be raised to 50 mln tons of oil equivalent in a year in 2016-2018.
If shared, it is necessary "to eat"
In 2002 both Russia and Kazakhstan also reached an agreement to develop the oil fields on the offshore border of the two countries jointly on the bases of parity. Russia is to acquire 25% in the Kurmangazi field development project and an option of participation in joint venture (JV) amounting 25%. The sources assert that Kurmangazi is a very promising area, surpassing the Khvalynskoye field for its reserves
Kurmangazi is to be developed on the PSA terms, and KazMunayGaz National Company is to [participate in the project on behalf of Kazakhstan.
Reserves of Discovered Oil Fields in Russian Sector of the Caspian
As Bakhitkozha Izhmukhambetov, executive director of KazMunayGaz on offshore projects, said the Kurmangazi project could contain from 7 to 9 bln barrels (or 1-1.2 bln tons) of proved reserves and 38 bln barrels (5.2 bln tons) of possible reserves.
This year the Kurmangazi project development plan envisaged drilling two wells of 1,300 and 2,000 meters depth, and detailed seismic survey of the structures revealed.
Mastering the field discovered by LUKOIL experts is to be realized on the bases of parity by KazMunayGaz and RosNeft companies. According the Kazakh experts estimation, the project requires $1.5 bln investment. $100 mln to $120 mln is to be spent for the prospecting period. At the initial phase of mastering to last 6 or 7 years, the daily output is to be raised from 2,000 to 195,000 barrels a day. The project meant for 30 years is to pay back in 7 or 10 years.
Basic Phases of Kurmangazi Project Realization
Source: Rusenergy.com
Thus, the agreement removed all political obstacles on the way of mastering the reserves in the northern part of the Caspian Sea, the reserves of which are estimated in more than 10 bln tons of oil equivalent. Late in 2002 the leaders of Russia and Kazakhstan undertook one more important step towards political rapprochement announcing the year of 2003 "A year of Kazakhstan in Russia". Now the Companies seem they can expect the soonest sale of the offshore blocks of the Northern Caspian.
LUKOIL's Gas Stripe
However the first contradictions emerged already early this year in the cooperation of Russia and Kazakhstan in mastering the hydrocarbon reserves in the border zone of the Caspian Sea. Vladimir Shkolnik, minister of Energy and Mineral Resources of Kazakhstan, accused the Russian oil producers late last January in impeding the offshore projects. "The work in Tsentralnoye field has not yet begun, and Russia is to be blamed in this situation, as the agreement on Caspian division isn't being observed" , Shkolnik said at the session of the Kazakh government. According to intergovernmental agreements of LUKOIL, owning the license to master Tsentralnoye, should invite Kazakhstan to take part in the said project, and to the project of mastering the Khvalynskoye, which also belongs to a border project. Vahid Alakbarov, president of LUKOIL, stated to Russian mass media upon his February visit to Astana that he had reached an agreement with President Nursultan Nazarbayev of Kazakhstan about founding a new joint project in the Caspian shelf of Kazakhstan. The cost of the said project is to make $150 mln. But, as the practice indicates, the thing is here not only in the current work load of Kazakhstan, but also in the willingness of the Russian companies themselves to do so. To be more exact, in perfect choice of the strategy of LUKOIL that is aimed so far at oil exporting in condition of re-grouping the interests in the Caspian shelf which took place in 2002.
* The discoveries in the Caspian contract areas were estimated by geologists of the currently largest Russian oil company as basically gas ones, holding 1.4 trln c/m of gas and called by them a "spoonful of tar in a barrel of honey". The projects of developing the Khvalynskoye and Tsentralnoye fields, which can also occur to be gas one's, in condition of GazProm's monopolistic rights and low gas prices in Russia can prove to be hopeless for LUKOIL.
* LUKOIL as well as YUKOS and GazProm (in the structure of Caspian Pipeline consortium) were refused compensation by means of obtaining the Russian share in mastering the Kurmangazi oil field, preference was given to RosNeft State Company.
* In November 2002 LUKOIL gave up her 10% production share (selling to Japanese Inpex) in Azerbaijanian Azeri-Chirag-Gunashli (ACG) mega-project (the operator of which is bp) and its participation in BTC Co engaged in financing and construction of the strategic Caspian Baku-Tbilisi-Ceyhan pipeline second after CPC. V. Alakbarov also said that his company intended to concentrate her activities in the project of the Caspian region, where she is an operator. Most of the experts fancied political pressure of the Kremlin in this extraordinarily advantageous short-term financial deal.
Thus, the largest Russian holding, in fact, lost the part of leader in 2002, which used to determine the oil and gas strategy of Russia in the Caspian, and the current 2003 is a decisive one for the company in acquiring both the new oil and gas assets and the function of operator in Caspian projects. But yet LUKOIL is engaged in preparing appropriate investment base and infrastructure for her Caspian plans.
Early this year the Company concluded a strategic memorandum with GazProm assuming the possibility of using the GazProm Network for exporting LUKOIL's gas. On April 2, 2003 LUKOIL Overseas Holding Ltd and Syntroleum International (USA) signed an agreement of intentions for the cooperation in the sphere of utilization of the assosiated gas in LUKOIL Overseas oil fields in Russia, Kazakhstan and other regions of the world. Late last year LUKOIL has also concluded a memorandum on cooperation with Norwegian Statoil Company, which, in particular, assumes exchange of oil and gas assets in the Caspian and North Sea.
KazMunayGaz is Resolute
On the other hand, KazMunayGaz is resolute in realizing her Caspian plans, it is no use waiting for her.
At present the Ministry of Energy and Mineral Resources of the RK and the KazMunayGaz NSC are completing the drawing of the program for mastering and developing the Kazakh sector of the Caspian Sea. The government of Kazakhstan has already held preliminary hearings. "Currently, we are engaged in work of making more exact the remarks of those controlling governmental bodies", said Aydar Demeu, chief of Department of Oil Industry of Kazakhstan's Ministry of Energy and Mineral Resources.
Demeu said, The program substantiates a necessity in accelerated and rational development of the offshore oil and gas operations to develop the country economy in an integrated way". The program analyses the contemporary economical, social, technical, ecological problems of the oil and gas operations. In the whole the program is subdivided into three stages.
The first stage embraces the years of 2003-2005 to create conditions for complex mastering, the second stage -2006-2010, accelerated mastering and the third -2011-2015 stabilization of the output. A. Demeu noted that "at the first stage expanding of the geological exploration is planned which will enable to grow the oil reserves. At this period the bases of united oil and gas data bank is to be laid, monitoring of the North Caspian project is to be provided as well as the offshore pilot project of Kazakhstan".
According to the prediction of Demeu, " the offshore projects preparation and marketing system is to be formed at the time. Out-stripping development of the coastal infrastructure is to be ensured to expand the offshore oil operations and conditions are to be created to organize imports substituting production for the offshore operations at this time. The Caspian littoral region is to be provided with sufficiently broad range of services both by onshore and air transport", TsentrAN repoted. The oil output volume in the Caspian Sea shelf is to be raised up to 150-200 mln tons a year, the RIA Novosti reported. Coming out at the conference held in Almaty dealing with "Oil and gas resources of the Caspian region in the system of global relations", he informed that, according to preliminary estimations the output of the Kazakh sector of the Caspian Sea would make about 100 mln tons.
According to Demeu, all 6 wells drilled in the frame of North Caspian project proved productive. The official of Kazakhstan's Ministry of Energy and Mineral Resources also said that the preliminary reserves of the Kashagan field made 1.7 bln tons of oil. The expected output growth at this field by 2005 is to reach about 0.5 mln tons, by 2010 -22 mln tons and by 2015 - 60 mln tons. To realize all these plans Kazakhstan needs remarkable investment, which can be provided not only by Trans-National Oil Holdings of the world like Chevrontexaco and ENI, but also By Russian companies which have sufficiently strengthened due to positive price situation in the world that are going to expand the export infrastructure of Russia (the projects in Murmansk, Baltic Transportation System, Construction of the oil Shipping base in Vyborg).
Founding the KazRosGaz JV together with Russian GazProm, KazMunayGaz has insured herself for a time (as she won't need yet an alternative version) from gas "surprises" of her earth bowels. In this circumstance each day of delay of Kazakhstan's joining the new projects in the shelf would mean missed revenues. For KMG the sooner the active mastering of the offshore reserves begins the quicker she will be able to convert her political resource into economical dividends. Therefore, KazMunayGaz is expecting from her Russian partners more real steps, to which they are not yet ready.
Not everything is so smooth in the cooperation of KazMunayGaz with RosNeft, the lack of platform for prospecting drilling takes the risk of becoming the reason due to which the mastering of Kurmangazi could be dragged off. An official of KazMunayGaz in Atyrau told RusEnergy, " RosNeft promises to drill three prospecting wells at the field for us in 2003. Hypothetically it is possible, but RosNeft has no jack-up rig in the Caspian. We have none too. What are we to do now? Should Kazakhstan look for a foreign partner for the Kurmangazi project and ask whether they have jack-up rig or no?" The 5-meter deep sea also becomes a serious obstacle in this case, as it can require a stationary platform exclusively under this field, which makes the financial scheme of the project more sophisticated.
The Astra jack-up rig belonging to LUKOIL is also functioning in the Northern Caspian and the Sunkar barge from which the Agip CCO international consortium is performing prospecting and appraisal drilling at Kashagan. But LUKOIL is planning to use the Astra from 2003 for detailed exploration and making more exact the structure of the fields discovered and the promising structures of the Severniy block. At present 10 structures have been prepared for wild-cat drilling, so LUKOIL will have the formal reason not the share the drill rig even under the pressure of the government long enough. The Sunkar barge is also engaged at Kashagan project for a few years ahead.
The Krasniye Barrikadi shipyard in Astrakhan is only founding a joint venture (JV) with Finnish company that will be able to produce jack-up rigs. But it is rather difficult to say yet when the new jack-up rig is to appear.
The difficulties of RosNeft in granting the Kurmangazi project with a drill rig is in this case an objective reality. The Russian companies need 3 or 4 years even on exclusively technical reasons to build a jack -up rig or some less time to deliver and assemble a similar platform from other part of the world. Azerbaijan has in possession three rigs, which are yet engaged in Azerbaijanian contract areas and technically only one of them can suit the terms of Kurmangazi, i.e. the Qurtulus jack-up rig, specially built by French TotalFinaElf Company for shallow Lankaran Denis and Talis Deniz fields in the south of Azerbaijanian sector of the Caspian.
2003 is a Decisive Year
A critical situation is set up for the market of oil field equipment for the Caspian, which to the last time was estimated as a growing one. Really, the agreement on the delimitation of the Caspian, signed recently by Russia with Azerbaijan and Kazakhstan have not only settled the fate of disputed fields in the Northern part of the Caspian basin, the Khvalynskaya, Tsentralnoye. Kurmangazi, but also whipped up the companies searching activity.
Last September Agip, which was going to start recovering "early" oil at Kashagan already in 2005, announced that she intended to put off the terms of mastering her contract area. LUKOIL, too, is re-considering her plans of work in Azerbaijanian sector towards curtail.
In this connection LUKOIL has already declined the project of modernization of the Shelf-7 Semi-submersible drill rig (SSDR), which was supposed to be used at the offshore D-222 block in Azerbaijanian sector. Instead the Company started negotiations with bp about possible use of the Istiqlal SSDR which is being used this year to drill the outstripping wells at the Shah Deniz gas field in Azerbaijanian section. OMZ and RR Offshore also relied on gaining the order for Shelf-7, both of the companies submitted to LUKOIL their pre-project calculations for the platform and were active in conducting negotiations.
Due to slowing down both the Azerbaijanian and Kazakh projects the future of the oil field equipment producers is to depend directly from the results of prospecting. In this case no special hope is pinned to Russian sector. At present three companies. LUKOIL, YUKOS (in the structure of Caspian Oil Company) and RosNeft are working there. The latter is perfoming the prospecting of the offshore hydrocarbon fields of Derbend and Dimitrov areas on the coast of Dagestan, as well as in a small Inchkhe-more oil field, but yet no results have been announced.
Thus, this year is to become a decisive one in concluding large scale agreements for prospecting and developing the Russian-Kazakh fields in the Kazakh shelf in general. All political conditions have been set up last year for the purpose, and appropriate legal contract base is being prepared for it as in the line of drawing appropriate investment legislation so in infrastructure as well.
Current price situation in the world market also favors the quickest development of these plans. So the Kazakh and Russian companies have all opportunities for successful realization of the oil and gas projects in their sea shelves, and the principal thing is not to miss them.
KAZAKHSTAN
Investments
Law No. 373-11 On Investments dated January 8, 2003
The Law states that new investors (both foreign and local) will not be guaranteed contract stability if changes are made to legislation. At present this Regulation is maintained for foreign nationals under in the Law On Foreign Investments. This Regulation is maintained for foreign investors signing contracts with authorized government bodies before the new Law On Investments comes into force. The Law sets forth investment preferences for all investors in the form of tax breaks and government grants in priority sectors, approved by the government. The Law replaces the Laws On Foreign Investments and On the Government Support for Investments. The following legislative acts of the Republic of Kazakhstan were deemed repealed: the December 27, 1994 Law of the Republic of Kazakhstan On Foreign Investments', the December 27, 1994 Decree of the Supreme Council of the Republic of Kazakhstan On the Procedure of the Enactment of the Law of the Republic of Kazakhstan "On Foreign Investments;"^^ the February 28, 1997 Law of the Republic of Kazakhstan On State Support of Direct Investments.
Maritime Law
The Rules for the State Registration of and Ownership Rights to Marine Vessels, dated January 17, 2003. In accordance with these Rules, the following legislative acts of the Republic of Kazakhstan shall become invalid: Resolution of the Cabinet of Ministers of the Republic of Kazakhstan No. 1231 On Rules of Granting the Right to Sail Marine Trade Vessels Under the National Flag of the Republic of Kazakhstan dated December 9, 1993; Resolution of the Government of the Republic of Kazakhstan No. 467, amending the aforementioned resolution, dated March 30, 2000.
These Rules have been worked out in accordance with the Law On Merchant Navigation and regulate the registration of sea-going, river-going and smaller vessels and rights to such vessels. According to Kazakhstan is legislation, a vessel acquires the right to sail under the national flag of Kazakhstan only after its registration with state registers. The Rules provide the list of the documents that should be submitted for registration, and requirements for these documents. In addition, they define the procedures for the registration of vessels under construction and the procedures for obtaining a temporary registration certificate (up to one year) that gives the right to sail under the national flag of Kazakhstan. Sea and river vessels should be registered in 30 days of the purchase date (construction, charter or lease date) and small vessels within ten days of this date.
Kurmangazi
The Kurmangazi structure, unlike the adjoining Kashagan field is, a over-salt one. The fact will considerably ease mastering of the structure, as it won't require headway through salt layer. The Jurassic and Cretaceous sediments are considered to be productive for Kurmangazi. 3./9 bln tons of oil equivalent is predicted in the first and 2.3 bln tons in the second sediments.
Besides the associated gas, the Kazakh geologists predict discovery of gas lenses in the structure. In general the onshore Kalamkas field in Buzachi peninsula is considered to be the closest to Kurmangazi for its geological structure. It is characterized by following parameters: the productive seam depth is from 505 to 936 meters, oil saturation thickness from 4 to 10 meters, co-efficiency of oil saturation up to 0,72, reservoir pressure up to 10 Mps, sulphur content 1.55%.
Kurmangazi is based on a shallow sea depth, an average 5 meters.
Source: Rusenergy
The least supposed commitments on mastering Kurmangazi envisages drilling two prospecting wells up to 2,000 and 1,300 meters depth. These wells will enable to estimate the oil and gas saturation of the structure on Jurassic and Cretaceous and possibly even on Triassic sediments. The prospecting drilling can be puit off from 2003 to a later time because of the lack of awailable jack-up rig. In this case realizing of the two dimensional seismic profiling is envisaged in 2003 in a volume of up to 1,000 running km in order to study in detail the geological seam structure, predict the promising intervals, and making more exact the prospecting wells.
In case productive horizons are revealed in two prospecting wells the appraisal work is to be carried out, which includes 3D seismic survey in the volume up to 500 sq.km., drilling and testing 6 appraisal wells. The cost of drilling of one well, both prospecting and appraisal ones is estimated at $16 mln.
A rig can drill in an average 14 Jurassic and 20 Cretaceous wells a year. Removal of the rig is to be realized by shallow water tugboats. The logistic supplies of the rig are to be realized from the coast.
KazMunayGaz recommends the use of three types of operating platforms:
Central platform with a capacity of 20.5 mln tons of oil a year, it contains a system of manifolds, an oil treatment plant, equipment to pump the oil ashore, gas treatment plant, compressor stations for the injection of gas and water, signal and control office center, energy providing system, fire-control system, housing premises, helicopter landing area, emergency safety facilities.
The wellhead platform of Jura-Creta (Jura-Mel) contains wellhead equipment, system of manifolds, helicopter landing area. 26 wells are planned to be drilled from each of the first and second platforms
The Mel (Creta) headway platform contains the same equipment as the Jura-Mel, but ensures drilling less number of wells.
The Central platform is to be a technological unit and connect the wellhead platforms with the terminal ashore. Injection of water is planned to keep the reservoir pressure. The scheme of structural flooding is to include a water injection well and two operative wells.
Source: Rusenergy