Kazakhstan sea projects - 2004

According to the Ministry of Geology and Conservation of Mineral Resources of the Republic of Kazakhstan, basic hydrocarbon stocks are concentrated in Atirau (former Guryevskaya) district of Kazakhstan. Over 75 fields are located here with prospected stocks of industrial category 929.2 mln tons of oil. 39 fields are under development, their stocks being over 846.1 mln tons. Preparatory works are on in 7 more fields (total stocks of crude hydrocarbon of industrial category - 9.530 mln tons). 24 fields are at the stage of pre-prospecting (supposed reserves - 50 mln tons of petroleum). Rather big fields of Atirau area are Tengiz (total reserves - over 800 mln tons of oil, initial production - 781.1 mln tons), Royal (initial produced stocks - 55.1 mln tons), Kenbayskoye (correspondingly 30.9 mln tons). Mangistau area of Kazakhstan follows Atirau for scales of stocks (before it was called Mangishlak). About 70 deposits have been discovered here, 27 of them are actively developed. The biggest depsits are Kashagan, Uzen, Jetibay, Kalamkas, Karajanbas. Let's remind that Mangistau area had long been the basic oil production area of Kazakhstan. Western-Kazakhstan and Aktyubin areas in Kazakhstan are considered perspective in terms of oil and gas stocks today. The first includes one of the biggest fields in the republic - Karachaganak. Janajol group of deposits has been discovered in the second.

KASHAGAN

The agreement on statement of the "Kashagan" (Kazakhstan) deposit development plan and development budget was signed between the national oil and gas company "KazMunayGaz" and AgipKCO on February 23. Settlement of this question was constantly delayed for inconsistency of development terms.

Kashagan deposit is one of the unique and large deposits in the world discovered for last 30 years with produced stocks of 9-13 bn barrels of petroleum. Forecasted volume of capital investments in full-scale development of the deposit is estimated approximately at 29 bn US dollars. During first stage of development technical and economic parameters of Kashagan deposit development will be constantly specified.

The very day Kazakhstan concluded agreement with consortium of foreign oil companies on postponement of commercial oil production terms in the Kashagan deposit. "Terms of commercial production in Kashagan are planned for 2007-2008, new technologies will be applied in this deposit", - the Prime Minister of Kazakhstan Danial Akhmetov stated to journalists on Wednesday in Astana after the end of the document signing ceremony.

According to the premiere, under the again signed documents "in near future more than $29 bn capital investments will be introduced in Kazakhstan, most revolutionary technical and technological solutions will be applied in development of Kashagan".

Akhmetov informed journalists that "under the authorized plan, in 2010 oil production volume in Kashagan will total 21 mln tons, in 2013 it will increase up to 42 mln tons and in 2015 production is supposed to bring to 56 mln tons".

Minister of Power and Mineral Resources Vladimir Shkolnik answering questions of journalists explained that indemnification for transfer of terms of commercial oil production in Kashagan represents "direct money paid to the republic budget having been delayed prior to the beginning of commercial production".

Under the agreement signed in 1997 commercial oil production in Kashagan was planned to start in 2005, however AgipKCO, operator of this deposit could not execute the given condition. But Agip KCO offered to the government of Kazakhstan to pay indemnification at the sum of $150 mln in return for the consent to put off launch of oil production in the deposit till 2007. According to government sources, now the consortium will pay $50 million to Kazakhstan and each year of delay the sum of penalty will grow - first to $100 mln, then up to $150 mln etc.

"According to the Production Share Agreement all the financial parties of the project on development of the Kashagan deposit are confidential and will never be proclaimed". This was informed today, on February 27 at the press briefing during the 9th session of Eurasian EC by the Minister of Power and Mineral Resources Vladimir Shkolnik.

However, Shkolnik noted "the sums may be proclaimed in case all the consortium shareholders give written approval".

Kazakhstan "always insisted on that our agreements are stable and firm", - Shkolnik emphasized.

Kashagan deposit is one of the largest deposits in the world revealed during recent 30 years, with geological oil stocks in the volume of 4.8 bn tons. Development of the deposit will be carried out in complex geological conditions with abnormal formation pressure and high content of hydrogen sulfide.

Severe climatic and rigid ecological conditions in the shallow area cause Northern Caspian to adopt new technical and technological solutions.

Besides the cmpany Shell Kazakhstan Development BV (further - Shell) announced about adoption of final decision on investment in Kashagan, huge oil deposit in Kazakhstan on February 25. In turn "KazMunayGaz" and consortium on PSA realization North Caspian Sea ratified the development plan of this project, says press release of Shell.

Kashagan deposit was discovered in 2000. Tentative estimation of its stocks reaches 38 bn barrels of petroleum. It makes the deposit one of the largest discovered in the world for recent 30 years. Shell possesses 16.67% in this project, and share of the company will increase up to 20.37% after purchase of the share of British Gas.

The head of Shell Exploration and Production Valter ban de Viyver stated "Kashagan is a huge project to ensure increase of the income of shareholders the coming decades. It is also an important part of our strategic vision of this region. We consider the Caspian and, more widely, CIS as future center of Shell's activity. And we achieve essential progress in "arrangement" of this activity center. Acceptance of the final investment decision on Kashagan is a third big step we have undertaken last year after similar decisions on Sakhalin and Salim".

The head of Shell Exploration and Production division on Near East, Russia and CIS Ron van den Berg added the following: "Today's green light Kashagan is a signal of our reliance in business climate of Kazakhstan. We welcome progress in improvement of legal and legislative systems and we are also glad the government successfully copes with maintenance of PSA stability on Kashagan".

First oil of Kashagan, by present plans, must be produced in 2008. Initial level of production is expected at the level of 75 thousand barrels a day. During first phase of the project production will increase up to 450 thousand barrels a day. Subsequent phases of the project development must ensure production at the level of 1.2 mln barrels a day.

To increase oil recovery and reduce sulfur production the consortium plans pumping produced gas into oil tank. Depending on success by reverse pump of gas, volume of produced stocks can reach 13 bn barrels of petroleum. Total amount of investments required for complete development of the deposit is estimated at $29 bn.

Kashagan stocks were among the overestimated on January 29, 2004 of Shell stocks. Their introduction in the official data on the company stocks will take place in 2004 that became possible as a result of today's decision of the company on investment in this project.

Partners on North Caspian Sea PSA (till the British Gas left it) are: Shell (16.67%), Agip Caspian Sea (16.67%), British Gas (16.67%), ExxonMobil (16.67%), Total (16.67%), ConocoPhillips (8.33%) and Inpex (8.33%). AgipKCO is operator of the project in the person of consortium. First oil in the Kashagan deposit was discovered in the well East-1 by summer 2000. Proved stocks of the deposit are 11 bn barrels, "OilCapital" informs.

Western information agencies inform that total investments in development of the biggest discovered oil deposit in the world for recent 30 years are estimated at $29 billion. On peak of production (presumably, by 2015) 1.2 million barrels a day will be produced from Kashagan.

According to the consortium data produced stocks of Kashagan total nine billions barrels of petroleum and it allows producing about 1.0 million barrels a day (50 millions tons a year) for a long time. If the consortium manages to carry out pumping gas to the layer, total amount of produced petroleum can increase up to 13 billion barrels. Except for Royal Dutch/Shell, participants of the consortium on development of Kashagan are Italian Eni, French Total, American Exxon Mobil and ConocoPhillips, Japanese Inpex.

American oil company ConocoPhillips informed about increase of confirmed stocks of oil and gas in 2003 by 650 mln barrels OE and expectations of further growth, including due to the Kashagan project in Kazakhstan.

In view of sale and purchase of assets, third by size oil and gas concern in USA updated 106% of funds in 2003 starting development of deposits in Australia, Canada and Norway. ConocoPhillips noted from 1999 to 2003 it updated 414% of the funds, Reuters informs from New York.

Analysts are alarmed of the ability ConocoPhillips to find enough new oil and gas deposits, especially in the United States.

According to the company's statement, in 2004 its oil stocks must increase due to development of the Kashagan deposit in the Kazakhstan sector of the Caspian shelf, and also new projects in Great Britain, China and Alaska.

According to the Agip KCO international consortium (including also ConocoPhillips) created for development of Kashagan, stocks of the huge deposit make nine billions barrels of petroleum that allows producing about 1.0 mln barrels a day (50 mln tons a year) during a long time. Kazakhstan reaches 2.4-3.2 bn tons of petroleum (21.6-23.4 bn barrels) estimating stocks.

Kurmangazi

"KazMunayGaz" Kazakhstan company and "Rosneft" Russian company continue negotiations with the Ministry of Energy and Mineral Resources of Kazakhstan on signature of Production share agreement (PSA) in the Kurmangazi deposit. President of the "KazMunayGaz" NC Uzakbay Karabalin informed this at the press conference in Astana, RIA "Novosti" informs. Besides, Karabalin informed, "as soon as we conclude the PSA agreement, we will be able to discuss questions of involving other investors". Particularly, according to him, Kazakhstan intendsto draw Franch "Toal" company to the consortium on development of Kurmangazi deposit.

"For now we are not planning to include any other investors in the consortium, "Total" is big enough company with necessary both as technical and technological, technical resources",-president of the "KazMunayGaz" NC CJSC said.

Earlier Prime Minister of Kazakhstan Danial Akhmetov said at the press conference in Astana the negotiations with "KazMunayGaz" and "Rosneft" may finish at the first half-year of 2004. Supposedly the share of French company will make 25%. In due time head of the Kazakhstan government emphasized that "cost of this pack will bear pronounced and commercial character".

Kurmangazi deposit is located in the northern sector of the Caspian in the territory of Kazakhstan. 50% in the project belongs to "KazMunayGaz", the remaining share is at disposal of "Rosneft", with 25% attached in the form of option supposed to transfer to "Zarubejneft". Predictions of oil stocks in the deposit are estimated at 240 mln tons. late November 2002 the parties signed agreement on the principle of Kurmangazi development, however the PSA on which terms the deposit must be developed has not been signed yet.

Kazakhstan and Russia planning to jointly develop Kurmangazi deposit in the Caspian shelf may have a new partner - French-Belgian company Total. Kazakhstan party intends to sell half of its 50% share to this company. Bakhitjan Khasanov, director general of the "KazMunayTeniz" company stated that negotiations with Total on transfer of a part of Kazakhstan's share in Kurmangazi are at the final stage. According to him, this company was chosen as a strategic partner by results of closed tender.

Oilreview portal notes that Russian-Kazakhstan agreement from 1998 about bottom demarcation of the Caspian provides that sites of the deposits located in the frontier zone must be developed by joint efforts of both countries. The perspective structure Kurmangazi is also related to those whose forecast stocks are from 700 mln to 1 bn tons of petroleum.

The intergovernmental protocol from 2002 on Kurmangazi provides opportunity of transmission by the authorized organizations of their shares to the third persons under agreement with the government. But thus each authorized organization has the priority right on purchase of the partner's share on conditions not worse than the one offered by the third party. KMG already directed notification to "Rosneft" on intention to transfer 10% share in Kurmangazi and present option for 15% more to Total.

Recently it became known that the petroleum company conducts similar negotiations also with Moscow. And Russia, probably, will also sell half of its share in the Kurmangazi deposit to French-Belgian company Total. However in Almaty the Total office refused to make comments on the possible deal under the Kurmangazi project. Kazakhstan and "Rosneft" will get back t negotiations on joint development of the big oil deposit of "Kurmangazi" in the Caspian shelf on March 2004.

Prime Minister of Kazakhstan Danial Akhmetov charged the Finance Ministry of the RK and Ministry of Economics and Budget Planning of the RK to run economic expertise of the pack of documents on joint development of "Kurmangazi" deposit during February at the meeting (February 3) with the president of NC "Rosneft" OJSC Serhey Bogdanchik.

Southern Jambay

and Southern Zaburunye

Nelson Resources Ltd. Canadian oil company plans drilling a new well within Jambay project in the Caspian Sea area in 2005. Chairman of the Board and chief executive director of this company Nick Zana informed this in interview to KZ-today. "The first well is to be drilled early next year", - he said.

Zana reminded that last autumn year "KazMunayGaz" national company finished the first stage of 2D sea regional experimental-methodical seismic researches in blocks of Southern Jambay and Southern Zaburunye.

A detailed seismic prospecting was planned to carry out by results of processing and interpretation of the received data this year. However, the interlocutor noted, in spite of that necessary measurements are made, but interpretation and explanation of the data are not ready yet.

Nelson Resources Ltd. under the agreement with "KazMunayGaz" has the right to purchase 25% participation share in the development project of the Caspian coastal blocs Southern Jambay and Southern Zaburunye. According to Zana, now purchase of 25% individual share in this project is considered "one of the variants". "The opportunity of buying 25% will arise when "KazMunayGaz" nominates a partner from the Kazakhstan party. We hope it will soon happen", - he noted.

The sites of Southern Jambay and Southern Zaburunye are located in shallow and transitive freezing zones of the Caspian Sea described by high ecological sensitivity. For realization of works "Jambay" was created in 1999 here to conduct oil operations according to the Production share agreement concluded with the competent body - Ministry of Power and Mineral Resources of the Republic of Kazakhstan on December 26, 2001.

This year, according to Danial Akhmetov, Kazakhstan "by own forces" will start prospecting operations on a number of seriously perspective structures. The structures "Rakushechnoye", "Satpayeva", etc. were named in particular.

Tyub-Karagan and Atash

The contract on "Dostik" project was signed early this year by the of president of "LUKOIL" Vagit Alekperov and president of "KazMunayGas" Uzakbay Karabalin. "Dostik" project is the first among those to be realized in future within the framework of the State program on development of hydrocarbon resources of the Kazakhstan sector of the Caspian Sea adopted on May 2003.

Specialized branches of the companies - "LUKOIL Overseas" and "KazMunayTeniz" will deal with direct realization of the projects.

The site Tyub-Karagan occupies the area of 1168 sq. km and is in 40 km northwest from the seaport Bautino. Capital outlays on realization of Tyub-Karagan PSA amount to $1.721 bn and operational outlays are expected at the level of $2.1 bn. Receipts to Kazakhstan budget will total $3.5 bn. Profitability rate of the project is fixed as less than 15%. Probability of discovering hydrocarbons in contract territory is estimated as high. Validity term of the PSA is 40 years

The Atash site covers the area about 8400 sq. km. Mesozoic structures Atashskiy, Kazakhstan and Maral are located on this site. The Atash structure is 80-85 km away from Bautino, and Maral structure 35 km from the Fort-Shevchenko city. After realization of additional prospecting operations the chance of opening other perspective structures in eastern part of the site Atash is not excluded.

Realization of the projects stipulates two stages. At the first stage realization of seismic prospecting and drilling of test wells and at the second - arrangement and operation of deposits is planned. The work will start already in 2004.