Future determined today GEOMETRY

KazMunayGaz CJSC Kazakhstan national oil and gas company may be attributed to the number of most dynamically developing in the territory of CIS. Tempting prospects open before the company in connection with signature of the State Development Program of Kazakhstan sector of the Caspian Sea. Under this program, share of "KazMunay Gaz" NC in all new projects in the Kazakhstan part of the Caspian shelf must make not less than 50%. The company has rather arrogant plans concerning also other projects, first of all, pipeline projects. In this connection all over the world interest to "KazMunayGaz" grows. Managing director of the national company "KazMunayGaz" CJSC J.N.MARABAYEV spoke about current condition of the company and its plans determining future of Kazakhstan's economy in exclusive interview to Caspian Energy.

- Jakip Nasibkaliyevich, how do you estimate work of eight JV, in which "KazMunayGaz" participates and the two projects, where KMG is represented as an authorized body?

- At the first sight, it may seem that "KazMunayGaz" has different tasks in these two cases: in the first the company represents as one of the shareholders, in the second represents government of Kazakhstan. However, in fact, in both cases "KazMunayGaz" carries out one, main task put before us by the President of the country - to represent and assert interests of the state. Actually, it was also one of the overall objectives for which our company was created in due time.

Certainly, there are different methods of dealing with the tasks in the two cases. Where the national company is a shareholder, we bear the same obligations and have the same rights as the other participating JV. An evident example is work of "Tengizchevroil" (TCO) joint venture. Certainly you are aware of the uneasy situation having emerged last year around realization of the second generation project. Government of the RK and NC "KazMunayGaz" CJSC offered the TCO partners to change this circuit to loan financing. Thus, necessity of delaying distribution of incomes and tax payments disappeared.

According to the Memorandum on mutual understanding on January 13, 2003 signed by the JV participants, agreement was achieved that TCO takes all the possible measures for rendering assistance in financing KMG share in capital expenditures. The specified provisions were fixed in the Agreement on realization, which assumes the joint venture to pay advance royalty totaling 600 mln US dollars in 2003-2005.

Organization of TCO expansion projects loan financing is a key task. With participation of the partners work is on to involve external loans on KMG share. Successful end of the specified deal will allow TCO to develop financing mechanisms of subsequent expansion projects without withdrawal of means from the basic activity.

Adoption of the decision on drawing loan financing under the expansion projects, signature, besides the above-stated documents the Agreement on payment under which "ChevronTexaco" paid 210 mln US dollars to the budget of the Republic of Kazakhstan in April, 2003 - were possible due to that KMG had a 20-percentage pack of shares. Their effective realization allowed to find compromise which arranged both the project partners and Kazakhstan.

Being a national company, "KazMunay Gaz" is called to assert interests of the republic in each oil and gas project with which we deal. But it does not mean at all any "pressure" in relation to foreign investors. We would least of all like to appear in such a "control-checking" aspect. The long-term investment cooperation is possible only with condition of observing balance of interests of all the interested parties. Therefore for us it is important to adjust a constructive dialogue with all the partners, ensure a mutually advantageous cooperation. We aspire to a dialogue, we search and find a balance of interests. And "Tengizchevroil" is a vivid example of such a dialogue.

We are guided by absolutely the same principles in work with other joint ventures irrespective of the manufacture volumes.

There is no sense to stop on each project in detail, but I consider necessary to mention one more important aspect. Now "KazMunayGaz" carries out, if it may be expressed this way, an "inventory" of assets. Half a year ago we declared abut the forthcoming re-structuring. The company is going to realize its share in non-profile projects having no positive influence on industrial and financial parameters. Besides we are going to concentrate the assets in order to direct basic forces to realization of the State program on development of the Kazakhstan sector of the Caspian Sea, and also to make a breakthrough to some external markets.

Our other levers are in those projects, where "KazMunayGaz" is an authorized body - Karachaganak and North-Caspian projects. Here we do not have a pack of shares, however we are authorized to check observance of production share agreements. And these powers we use to the full.

The main problem - transportation of produced raw material on export has been solved today: hydrocarbon delivery from Karachaganak deposit to international markets via CPC system will start.

The difficulty and some discrepancy of tasks facing KMG as an Authorized body, is well illustrated by the Program of industrial-innovative development more often called as "the program of import replacement". On the one hand, it is easier for any company to buy necessary equipment and materials from those who produces it for already some decades, that is guarantees a stable quality, and with whom long-term contacts are adjusted. On the other hand, you see, it is an abnormal situation, when the means of oil companies do not work in domestic manufacture. How to pass between the devil and the deep sea, how to increase the share of domestic manufacturer, not putting damage to the manufacture?

Search of these ways is a part of the Authorized body's work. And I can name this work successful with satisfaction, as the share of Kazakhstan participation in Karacahagank project has grown up to 40%. It is a result of realization of the Program on increase of Kazakhstan participation in Karachaganak project during 2002-2003 developed by joint efforts of the Authorized body and project shareholders.

Certainly, it is possible to choose only industrial parameters as main criterion of efficiency (and Karachaganak project is rather successful from this point of view). But where to run from the social questions to be solved in the region not only by local power, but also National oil and gas company. We try to socially "focus" all the investors, convince them of mutual strategic benefit of expenditure on the "social" and ecology. In general, it is a separate interesting theme.

Let's say 64 mln US dollars was directed to realization of social and infrastructure projects in the West-Kazakhstan area at the expense of Karachaganak project means. Due to our efforts and persistence about 10 mln US dollars were allocated from means of Karachaganak project on resettlement of inhabitants of Tungush settlement and accomplishment of inhabited apartments at nine other nearby deposits in 2003.

Karachaganak PSA is one of the first great and successfully developing contracts on the principle of production share.

The main problem - transportation of produced raw material on export is solved today: hydrocarbon delivery from Karachaganak deposit to international markets via CPC system will start.

Therefore experience of work on Karachaganak project will be very useful to Kazakhstan at signing other contracts of this kind. For us it is a pilot balloon, success of which will facilitate further work.

- And how the last dispute between investors and Government of the RK ob production of First Oil in Kashagan is solved?

- I do not think that the word "dispute" is appropriate in the given situation, it is rather "discussion" of starting oil production in the Kashagan deposit. In due time operator of the project - Agip KCO company - agreed with the requirement of the head of our state to start oil production in the Kashagan deposit not later than in 2005. But in view of objective reasons the Contractor offered to postpone beginning of industrial development of Kashagan deposit for such factors as severe climatic and rigid ecological conditions, shallow water in the area of oil operations realization, and also mining-geological conditions, lay of productive adjournment and physical-chemical properties of formation fluids.

In this situation a compromise was urgent. And it was found. February 25, 2004 in Astana the Additional agreement was signedto the production share agreement from November 18, 1997 on the Northern Caspian. The Plan and Development Budget of the Kashagan deposit is also authorized that assumes the commercial oil production will start in the northeast part of the deposit in 2007-2008, and that in 2010 the production maybe brought to 21 mln tons of petroleum per year. In 2013, due to further expansion of eastern site of development the level of oil production will be brought to 42 mln tons per year. Maximal stable level of oil production is planned to achieve in the volume of 56 mln tons per year in 2015-2016.

Why is the definition of start date of Kashagan commercial production of such a great importance? Because it will determine further development of the North-Caspian project and render strong influence on realization of the State program of development of the Kazakhstan sector of the Caspian Sea.

Kazakhstan will receive significant indemnification for postponement of the term of commercial production start. The sum of indemnification is decided not to disclose, I can tell only that it satisfies both the parties. More important is another figure: total capital investment in development of Kashagan deposit will make $29 bn. Advance achievements will be used in oil production, also advanced technologies have been approved, in particular, opposite gas-drive is introduced, which is unique for such kind of deposits with abnormally high stratum pressure and high contents of hydrogen sulfide.

I shall remind that besides the Kashagan deposit, four hydrocarbon deposits are included in the contract territory of the consortium: Kalamkas-sea, Aktoty, Kayran, Southwest Kashagan. In 2002-2003 it was announced that hydrocarbons were discovered in all these structures at direct participation of "KazMunayGaz" as an Authorized body.

Thus, the deposit of Kashagan is the biggest discovery of hydrocarbons for the recent 30 years with general geological stocks of 38 bn barrels of oil finally confirmed. So "the big Caspian petroleum" is not a myth, but a reality, which must bring wealth and prosperity to our countries.

- How does oil production in Kashagan coordinate with the plans of Actau-Baku transport corridor construction? Will the Actau-Baku route be used for transportation of oil from Kurmangazi, as Total is a members of BTC Co?

- Yes, certainly, there is a direct relation between development of Kashagan and Actau-Baku project. As you know, in 2002 four companies - Eni, ConocoPhillips, Inpex and Total got totally 15 percents of participation in Baku-Tbilisi-Ceyhan pipeline project. All these companies are also shareholders of the North-Caspian project in Kazakhstan. And, certainly, they are interested in transporting future volumes of oil produced in Kashagan in the given direction. The company of Total, about which you ask, also expressed intention to use BTC oil pipeline as an export route for Kashagan petroleum.

The Kazakhstan party now will carry out work on creation of appropriate normative-legal base, which is called to define and protect transportation conditions of Kazakhstan oil from Actau (Kazakhstan) to Baku (Azerbaijan) and further via the oil pipeline of Baku-Tbilisi-Ceyhan (BTC), and also other export routes beginning with the Azerbaijan Republic.

As to oil transportation directions from "Kurmangazi" deposit, here, I believe, it is premature to make any forecasts. The deposit development project is in the very initial phase, and the question, where future oil will be is still unsolved. The time will come, the new parameters will become known, then we shall sit and quietly count up. You see "oil rivers", as well as present, bear waters on the way of least resistance, in our case financial and economic resistance. We are manufacturers, and not politicians, and we must be guided first of all by economic feasibility reasons in the work.

- On which principle "Actau-Baku" transport company will be formed? What companies will be its founders? How the individual share of the companies-exporters and Kazakhstan will be distributed, investment by foreign companies and Kazakhstan party will be supplied? How the legislative-legal base of the given project will be provided? When will the intergovernmental agreement with Azerbaijan and agreement of Actau-Baku company with BTC Co be signed?

- The idea of creating a special company - let's name it conditionally "Actau-Baku Co." - has arisen for several reasons. In order to deliver oil from Kazakhstan to Azerbaijan, it is necessary to design, construct and ensure operation of a completely new, qualitative and more reliable transportation system via the Caspian Sea. "Actau-Baku Co." will be formed and work according to international standards in the field of sea oil transportation.

I'll note that besides technical and legal aspects here there are also very rigid ecological obligations, you see the Caspian is a reservoir with most unique flora and fauna, original biological reserve.

I believe that basic shareholders will be the companies participating also in the BTC and North-Caspian projects, you see establishment of "Actau-Baku Co." meets first of all their interests, that is Eni, ConocoPhillips, Inpex and Total. It is obvious that with the purpose of maintaining observance of national interests "KazMunayGaz" NC can become one more participant of the "Actau-Baku Co.". It is still early to speak about concrete form of financing and management of the given company.

Legislative base of the project will be provided with existing national legislation of Kazakhstan and Azerbaijan on the basis of signed bilateral agreements on safety of sea transportations via Caspian sea, and also on the basis of the Intergovernmental agreement between two countries (IGA). At the same time "NC "KazMunayGaz" CJSC and SOCAR at participation of BTC Co. And foreign investors finish development of the IGA text. Supposedly in the first quarter of 2004 the IGA project will be submitted to consideration of Governments of the countries.

Does "KazMunayGaz" plan to expand its activity in the Caspian countries? Is the question of creating new oil and gas producing JV, Consortia in the territory of Kazakhstan discussed today?

- As I have already noted, development prospects of NC "KazMunayGaz" are connected, first of all with development of Kazakhstan sector of the Caspian, where our company must possess not less than 50 percents in all the projects on development of sea deposits. Therefore oil and gas producing JV will be created further in Kazakhstan, naturally, with participation of our company. To make the principles and approaches to creation of such JV, I'll bring two examples - development projects of Khvalinskoye and Central deposits.

"Khvalinskoye" project is realized within framework of the interstate Protocol on May 13, 2002 to the Agreement on demarcation of northern part bottom of the Caspian Sea with the purpose of realizing sovereign rights on field operation. Authorized organizations of the two countries - "KazMunayGaz" from Kazakhstan and "Lukoil" from Russia - signed the Protocol on intentions and Agreement on confidentiality on autumn 2002. In April 2003 the companies concluded the Agreement on principles of joint development of deposit oil and gas resources (JDD) where arrangements of the parties concerning further steps under the project are fixed, in particular, on creation of Consortium on the basis of Contracts on joint activity (CJA).

Coordination of the CJA project, all the technical and geological parameters are finished. Also the plan-schedule of works under the prepared project is discussed providing inclusion of the deposit by State Duma of Russia to the list of objects in 2004 use right of which may be presented on PSA terms.

November 24, 2003 authorized organization on another project - "Central" was determined by the Order of the RF Government. Thus, the "CenterCaspNefteGaz" company was created by "Lukoil" and "Gazprom" on parity beginnings. "KazMunay Gaz" is determined as authorized organization from the Kazakhstan party. Negotiations between the authorized organizations on the project will start till the end of this year, and also all the geological-geophysical information will be transferred to "KazMunayGaz" as stipulated by the Agreement on confidentiality concluded in April, 2003.

- What are the basic aspects of agreement on "Dostik" project, when will direct realization of the given project start?

- "Dostik" is one of the most perspective projects in the Kazakhstan sector of the Caspian Sea. It includes "Tyub-Karagan" and "Kazakhstan" sites.

The agreement on transmission of the right on field operation was signed early this year in Astana within the framework of official visit of the Russian President Vladimir Putin to Kazakhstan according to which "Lukoil" got 50% of individual shares in the PSA on Tyub-Karagan site from "KazMunay Gaz". Besides the agreement of participating interests on geological prospecting of the neighboring Atash sea site was signed.

Direct realization of the project will begin this year. The PSA on Tyub-Karagan is valid for 40 years.

On preliminary estimations resources produced from Tyub-Karagan total about 150 millions tons of standard fuel. According to experts, the probability of discovering hydrocarbons in the contract territory by the parties is rather high. The resources produced in Atash total over 130 millions tons of standard fuel.

Expenses for realization of the projects in case of commercial hydrocarbon discovery can make over 3 billions dollars.

- In view of production of big volumes of natural gas by Kazakhstan the coming five years, is lining of the transcaspian gas pipeline to Baku (planned with the purpose of future connection to Baku-Tbilisi-Erzurum) much more ecological, than oil pipeline?

- True, Kazakhstan is going to increase natural gas production volumes and, accordingly, plans to develop gas transportation infrastructure. The route of Kazakhstan-Turkmenistan-Azerbaijan-Georgia-Turkey is considered as a possible export direction of Kazakhstan gas to Turkey and Europe via the transcaspian route. But today the most real direction is transit through Russia.

As to your remark about ecological compatibility of the pipelines, I must note that we lead their construction observing all the requirements and standards on safety, including, certainly, environmental protection requirement.

If a gas pipeline directly through the Caspian water area is meant, on technical and ecological parameters such a project will appear less complex and risky than the project of oil pipeline. At least, there is already an active example - "blue flow", Russian gas pipeline to Turkey through water thickness of the Black Sea.

Really, the project of a similar gas pipeline will create ecologically much less risky oil pipeline. But I think, what may reliably ensure ecological safety of land oil pipeline exists already today, and to achieve a similar safety for a sea oil pipeline new solutions, new technologies and materials will be required. I believe, it is a difficult task for future researches and perspective development.

- What is being done today on realization of transport directions to China and Iran? Are there applications from the companies on export in the given directions and when will formation of these routes finish?

- From the directions you named, most real is certainly, Chinese. This project will soon enter the stage of concrete embodiment. The Agreement on stage-by-stage construction of Kazakhstan - China oil pipeline has been signed between the Chinese National Oil and Gas Corporation and NC "KazMunayGaz" CJSC. According to it we started realization of construction project of the oil pipeline in Atasu-Alashankou site. The oil pipeline is planned to start being constructed at the second half of 2004 and finish by the end of 2005. At the first stage throughput of the oil pipeline is planned at the level of 10 mln tons per year, by 2010 we consider to bring it up to 20 mln tons per year.

Interestingly, this project is of all-sufficient value for us, as it can simultaneously solve the task of Kazakhstan's energy independence connecting single network of internal oil pipeline system of the republic.

I'll note that last year construction of the Kenkiyak-Atirau oil pipeline was completed which can be a part of the great pipe Western Kazakhstan-China, if starts in reverse direction.

The Iranian direction is characterized by availability of sale markets, presence of a powerful terminal in the Persian Gulf, and we think it is a long-term perspective project of oil delivery to Asian market.

Apart from petroleum, we also study the opportunity of gas delivery in eastern direction. At least, the Chinese party shows a serious interest to this. As it is known, now "West-East" (Urumchi-Shanghai) gas pipeline is under construction in China, through which gas from Tarim basin is planned to transport. We have offered some versions to the Chinese party on gas submission from Kazakhstan for this gas pipeline. Now we begin preliminary study of options of constructing Kazakhstan-China gas pipeline. Essential minus of these projects is just one - big extent. The more an oil and especially gas pipeline is longer, the more raw material is required to fill it and start actually transportation. Certainly, nobody is going to build an economically inefficient pipeline. New technical solutions, new technologies will come, pumping cost price will decrease and then the pipelines "will step" further.

- What markets for Kazakhstan oil and gas do you consider most attractive from the commercial point of view?

- As it is known, our country adheres to the principle of multiple vector directions of oil and gas export. We attentively watch the course of situation concerning all the markets - both that what kinds of deliveries are already carried out, and the potential. Presently Kazakhstan oil and gas are delivered to the countries of Europe, Mediterranean, Russia, and also insignificant volumes are sent via the Persian gulf within the framework of operations with Iran on replacement to Southeast Asia.

Concerning the Asian market I can say that fast growth of oil and gas consumption and attractive enough forecasts, particularly for China, force us to give the most focused attention to this region.

I want to emphasize that apart from transport component, commercial appeal of these or other markets can change in certain degree for oil price fluctuations, which, in turn, depend on many factors. Therefore while planning and estimating commercial conditions of export routes and markets for our hydrocarbon resources we proceed, as I already said, from the principle of economic efficiency. But not only. There is a risk of not seeing long-term prospects, not taking advantage of strategic benefits provided to us by the history sometimes in natural aspiration of "sitting and counting" all the pluses and minuses of each concrete project. Therefore we, being pragmatists and practical people must be also partly strategists, at least in oil and gas branch to be able to hold a hand on the pulse of world conjuncture. This is what the trust of the head of our state means - to creatively represent and assert balanced, multilevel and versatile interests of the country in oil and gas sphere, today, in near future, in distant future. In this sense we, workers of "KazMunayGaz" feel as owners, not in the meaning of "sovereigns", but as belonging to the state.

- Jakip Nasibkaliyevich, you said "to hold a hand on pulse of world conjuncture". Obviously, you mean not only habitual industrial and commercial parameters, but also something greater. What is oil and gas branch personally for you, simply a work?

- I am not going to speak trivially, but I must say the whole history of mankind's struggle for petroleum is represented for me as full of the most interesting openings, achievement, tragedies and even puzzles. Here are some examples.

From of old, petroleum known to people was used for many centuries just as fuel for primitive lamps, medicine from some diseases and … battle incendiary liquid called "wildfire". Much later people learned to separate kerosene from oil by primitive distillation, so the era of kerosene lamps began. In 1865 John Rockefeller not known to anybody before founded a kerosene plant that made him a millionaire in five years. The world fell ill with oil fever.

Since that time the history of mankind got strongly tied up with the history of oil processing and production. Wars and revolutions took place because of it, huge fortunes were made on it. Rockefeller founded the famous "Standard Oil" and brought his capitals up to 100 millions by 1885, and up to 2 billions dollars in 1910, improbable for that time money! Then the saying was born: "as rich as Rockefeller". Probably millions of motorists would be surprised to hear that hundred years ago petrol was poured off onto ground as some unfit collateral product of oil refining into kerosene.

And only in 1915, after several years of "Ford-1" mass conveyor automobile manufacture of famous Henry Ford, a new abrupt crisis occurred in oil history. The "lighting" era of kerosene lamps finished, petrol automobile era started. However, with invention of jet aircraft kerosene also returned good name to itself. In the whole all history oil went hand in hand with technical progress, already in mid XX century the world was stunned with polymeric and other miracles of petrochemistry.

At the same time the oil struggle got more dramatic and even tragic character. "A drop of petroleum costs a drop of blood", - this ominous metaphor belongs to Gorge Klemanso, chairman of the Ministerial Council of France, one of the "fathers" of the Versailles peace system. The arrant politician knew what he was saying. The Versailles did not bring peace and the states of the planet are to this day separated, and sometimes even torn of contradictions, one of which is the oil issue. Possessing petroleum led to good results for one states, for the others - to vegetation. It appeared that great state wisdom and will is required to correctly dispose of "petroleum inheritance", use it to the welfare of people and state …

Fate decreed that Kazakhstan has such a wisdom and leadership in the person of our President of the country. For me, as well as for many other workers of "KazMunay Gaz" performance of the plans of people and President has become both work, and debt, both calling, and honor.

Future is determined already today. We are able to form it stable, predictable, to direct it to development and prosperity. Comprehension of importance and necessity of the events where you take part is a great feeling. I am glad that I can contribute my mite to the great business of building a new Kazakhstan. I am sure that second century of the Kazakhstan petroleum, beginning of which we celebrated recently will become the time of blooming and creation for our republic, neighboring states of the Commonwealth.

Thank you for the interview.