Oil pipelines on tap to connect fields in western Kazakhstan

By Alan Petzet
Chief Editor-Exploration and Economics

HOUSTON, Oct. 24 -- Large fields in western Kazakhstan will be able to begin or increase production as the result of the signing of transportation agreements this year.

The fields most affected are in the South Torgai and eastern North Caspian basins north and northeast of the Caspian and Aral seas.

Kazakhstan's state KazMunaiGas and Hurricane Hydrocarbons Ltd., Calgary, this week concluded what Hurricane called a "comprehensive agreement" that set the principles of their future cooperation on oil pipelines.

Under the agreement, both KazMunaiGas and Hurricane will construct oil pipelines that will serve fields in the South Torgai basin. Hurricane said the pipeline that it is building will pay out quickly, reduce export shipment distance by 800 miles, and cut its transportation costs by $2.50/bbl.

Hurricane has interests in 10 fields containing a combined 512 million bbl of proved and probable reserves and productive exploration acreage. The fields are Kumkol South, separate South Kumkol, Kumkol North, East Kumkol, Maybulak, Aryskum, Qyzylkiya, Akshabulak, Aksai, and Nurali.

The company said Kazakhstan's oil production averaged 950,000 b/d in the first 8 months of 2002, of which Hurricane as the second largest non-Kazakh producer provided 15%. Kazakhstan's production target in 2010 is 1,952,000 b/d.

Meanwhile, KazTransOil completed and pressure tested a 10-mile, 19.5-in., 120,000 b/d pipeline from giant Alibekmola field to a pipeline terminal at Kenkiyak oil field 125 miles south of Aktiubinsk, Kazakhstan. This pipeline will serve Alibekmola and later giant Kozhasai field (OGJ Online, Apr. 24, 2002).

KazTransOil is laying a 275-mile, $160 million pipeline from Kenkiyak to Atyrau, the northeastern Caspian Sea port and oil pipeline hub, with start-up set for early 2003.

Shipping Torgai oil
Under a mid-October agreement, Hurricane will support and assist KazMunaiGas in its future plans to build the 435-mile Kumkol-Aralsk-Kenkiyak (KAK) oil pipeline as follows:

--KazMunaiGas and Hurricane will conduct a joint feasibility study.
--KazMunaiGas will control and operate the project.
--Hurricane will commit to ship its available export volumes under ship-or-pay contracts, in order to facilitate project financing.
--Hurricane will take a minority interest in the project if required for financing the project.
-- Design, financing, and construction of the project may require 2-3 years, and the pipeline may be also built in phases, the first section being from Kumkol to Aralsk.

The KAK pipeline when completed and the Kenkiyak-Atyrau pipeline would achieve full pipeline connection of the South Torgai basin oil fields to Atyrau. Three trans-shipment options would be available from Atyrau: the Atyrau to Samara, Russia, pipeline, the Caspian Pipeline Consortium (CPC) pipeline to the Black Sea, or a pipeline to the eastern Caspian port of Aktau, Kazakhstan.

Alternatively, the KAK pipeline may be reversed in the future to ship western Kazakh crude oil to southern or eastern markets, adding valuable strategic options for future Kazakh crude oil exports, Hurricane said.

QAM pipeline
The agreement also confirms KazMunaiGas support for Hurricane's construction of the QAM pipeline, named for Qyzylkiya, Aryskum, and Maybulak fields in the South Torgai basin.

The QAM pipeline, initiated by Hurricane, is divided in two sections:
-- A 65-mile section from the Aryskum field pump station southwest to Dzhusaly will connect the three fields to a new rail terminal at Dzhusaly on the Syr Darya River for further rail shipments to western destinations.
-- A 43-mile section will connect Hurricane's producing Kumkol fields to Aryskum.
The 16-in. QAM pipeline, under construction, will have an initial design capacity of 100,000 b/d, reducing transportation costs and improving the economics of future developments, Hurricane said.

QAM, expected at full operation by third quarter 2003, will facilitate the early development of Hurricane's known oil fields and stimulate exploration in the South Torgai basin. Capacity could be hiked to 140,000 b/d later.

KazMunaiGas will take 50% participation in the equity and financing of the Aryskum-Dzhusaly section of the QAM pipeline in joint venture with Hurricane. After Hurricane completes QAM, KazTransOil will become technical operator of the pipeline.

The companies agreed to idle the Aryskum-Dzhusaly section, reverse the Kumkol-Aryskum section, and direct shipments through the KAK pipeline as soon as KAK is completed.

The October agreement also confirms the continued use by the Torgai producers of
the KazTransOil Eastern branch pipelines and terminals for crude supplies to
the Shymkent, Kazakhstan, refinery and other export routes.

Alibekmola-Kozhasai
KazakhOil Aktobe LLP (KOA), held 50-50 by KazMunaiGas and Nelson Resources, began oil sales from Alibekmola field in December 2001.

The field produces 38° gravity oil. Three main zones, KT-1, KT-2-1, and KT-2-2, range in depth from 2,000 to 3,600 m. KT-1 has a gas cap.

Field production had reached 3,500 b/d by mid-August. A fourth appraisal well spudded in mid-August, and a fifth well was expected to be spudded by yearend. Significant drilling over several years should bring Alibekmola output to 55,000 b/d, Nelson said.

Outside consulting engineers on Sept. 1 gave the field 159 million bbl of proved, 80 million bbl of probable, and 168 million bbl of possible reserves based on Toronto Stock Exchange rules. The proved and probable figures are based on 69 projected producing wells on 135-acre spacing, each averaging 990 b/d initially.

The crude is exported by rail and pipeline to Europe. With completion of pipeline service to Atyrau, Nelson anticipates almost halving the $12.60/bbl differential between Brent and Alibekmola crudes.

Development of Kozhasai, with reserves estimated at 224 million bbl, is to follow 1 year behind that of Alibekmola. Nelson anticipates acquisition of 230 sq km of 3D seismic and workover of two Soviet wells by yearend 2002. The first new well would be drilled in third quarter 2003, and a new reserves audit would come later.

Alibekmola and Kozhasai also contain 690 bcf of recoverable natural gas.

Caspian prospects
Another agreement with KazMunaiGas conditionally grants Nelson an option to acquire a 25% interest in Zhambai LLP. Zhambai holds a hydrocarbon E&P license on the Zhambai South and South Zaburunye blocks in Atyrau oblast in the Caspian close to the Volga River delta.

The presalt Zhambai South structure, which Nelson likened to reservoirs in giant Astrakhan, Kashagan, and Tengiz fields, could hold reserves of 14 billion bbl of oil equivalent.

South Zaburunye field has southwestern and northeastern legs. The G-25 well in the northeastern leg flowed 190 b/d of 29° gravity oil from 883-889 m.

Contact Alan Petzet at alanp@ogjonline.com

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