Caspian oil starts flowing via $2.6 billion export pipeline

By the OGJ Online Staff

LONDON, Nov. 27 -- Caspian oil has begun flowing through the 900-mile pipeline from Kazakhstan to a new terminal on the Black Sea near the Russian city of Novorossiysk, bringing on line a project that has cost $2.65 billion and taken almost a decade to complete, although construction started only in 1999.

The terminal received its first oil in August and will be able to operate at its capacity of 600,000 b/d in the first half of 2002.

The pipeline will pump around 600,000 b/d to the west from the large Tengiz and other oil fields in western Kazakhstan to Russia. US companies have invested $700 million in the line, and US Energy Sec. Spencer Abraham was a guest at the opening ceremony in Novorossiysk.

The Caspian Pipeline Co. (CPC) project will stimulate new oil extraction projects and will provide substantial economic benefits to regions along the pipeline route. Over the 40-year lifespan of the project the Russian and regional governments will receive $23.3 billion in taxes and revenues, and the Kazakhstan Republic $8.2 billion.

The regions along the pipeline route will receive two thirds of the taxes and 50% of the revenues from the pipeline. It is estimated that the Krasnodar region will receive more than $6.7 billion, the Stavropol region $1.5 billion, the Astrakhan oblast $1.7 billion, and the Republic of Kalmykia $1.8 billion.

Dick Matzke, vice chairman of ChevronTexaco Corp., which has a 15% interest in the project, said, "This world-class infrastructure project will encourage the development of oil fields in the region."

The pipeline has come on stream at an important time, providing access to export markets for Caspian crude when non-Middle East crudes are becoming less attractive for economic, security of supply, and political reasons.

The Tengizchevroil (TCO) Joint Venture operates Tengiz field, which has potential reserves of 6-9 billion bbl. ChevronTexaco has 50% of Tengizchevroil, ExxonMobil Corp. 25%, Kazakhoil LC 20%, and LukArco BV 5%.

Since its inception in 1993, the joint venture has increased production at Tengiz from 60,000 b/d to about 215,000 b/d. A recently completed expansion is expected to increase output to 260,000 b/d by the end of this month. Capital spending in Tengiz over its expected 40-year life will be about $20 billion.

The Caspian Pipeline Co. (CPC) was established in 1992 by Russia, the Republic of Kazakhstan, and the Sultanate of Oman.

It was restructured in 1996, and private investment has followed. CPC is now owned by the Russian Federation 24%, Republic of Kazakhstan 19%, Sultanate of Oman 7%, ChevronTexaco Caspian Pipeline Consortium Co. 15%, LukArco 12.5%, Rosneft-Shell Caspian Ventures Ltd. 7.5%, ExxonMobil Caspian Pipeline Co. 7.5%, Agip International NV 2%, BG Overseas Holdings Ltd. 2 %, Kazakhstan Pipeline Ventures LC 1.75%, and Oryx Caspian Pipeline LC 1.75%.

BP PLC, in turn, owns a 46% share in LukArco, which gives it a share in CPC of 5.75%. LukArco also holds 5% of Tengiz, which gives BP a net share in Tengiz of 2.455%. OAO Lukoil holds the remaining 54% of LukArco.

BP also holds a 0.9% stake in CPC through its holding in Kazakhstan Pipeline Ventures but is selling that for $100 million to Hurricane Hydrocarbons Ltd. of Calgary. The sale is expected to be completed in the middle of December. It will give Hurricane access to an export line for its oil, which is moved by railroad to the Atyrau-Samar line. Hurricane is Kazakhstan's fourth largest oil producer with nearly 100,000 b/d of production and proven reserves of almost 500 million bbl in Turgai field.

Upon completion of the acquisition, Hurricane will become a 49.9% joint venture partner of Kazakhoil, with equal management rights, in Kazakhstan Pipeline Ventures. Hurricane would also be entitled to the repayment of KPV loans to CPC of $90 million. Hurricane will also obtain preferential rights of access to the CPC pipeline for the transportation of 64,000 b/d at the CPC shareholders tariff.

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