Production start at Kashagan oil field hits delay

Eric Watkins
Senior Correspondent

LOS ANGELES, June 30 -- The Kazakh government, winning important new economic concessions, agreed to a further delay in the start of production at the offshore Kashagan oil field after meeting with Agip Kazakhstan North Caspian Operating Co., the Eni SPA-led consortium developing the field.

"A memorandum was signed [June 27], according to which, we have agreed to postpone the date to start commercial extraction to 2013," said Energy and Mineral Resources Minister Sauat Mynbayev.

The government gave no reasons for the latest delay. However, Italy's daily newspaper Il Sole 24 Ore said the Kazakh government—eyeing increased royalties—asked for changes to the earlier memorandum of understanding with the Eni-led consortium. Oil prices have increased sharply since the MOU was signed Jan. 14.

According to the paper, the consortium was forced to accept changes in the MOU because of earlier delays and cost increases.

Meanwhile at the World Petroleum Congress in Madrid, Rex Tillerson, chief executive of ExxonMobil, told reporters that Kazakh officials are holding up development through disputes with western companies active in that field. He said it is time for Kazakstan to proceed with bringing production on stream.

Kazakhstan's state-owned KazMunaiGas, which holds a 16.81% share in the project, said, "The Kashagan consortium has reached agreement with the government of the Republic of Kazakhstan on a detailed memorandum of understanding which expands considerably the agreements reached last December and January and paves the way for proceeding with the development project.

"In addition to the important adjustments to the economic terms, the new agreement also provides the Republic of Kazakhstan with substantial assurances that the project will be implemented in accordance with the approved schedule," KazMunaiGas said.

The current agreement—less than 6 months after a decision to delay production until 2011—is the fourth postponement of production from Kashagan, which originally was to come on stream in 2005.

According to Eni Chief Executive Paolo Scaroni, changes are possible until the January agreement is officially incorporated into the production-sharing agreement between the sides. The Kazakh government had set a June deadline for talks with the consortium.

Mynbayev said the consortium and government agreed on royalties that would be linked to the price of oil. At more than $130/bbl, he said the royalty would be around 7.5-8%. At $195/bbl, the royalty would rise to 12.5%

In January, the consortium agreed, among other things, to make an additional payment to Kazakhstan of $2.5-4.5 billion, depending on the price of oil. Crude prices have escalated sharply to record-high levels.

New tax proposed
Analyst Global Insight said the Kazakh government forced the hand of the consortium with new tax proposals. "Not coincidentally," the analyst said, "Kazakh officials have recently suggested that a new oil export duty, which went into effect in May and for which only companies operating under flexible tax schemes are liable, could be expanded to all oil producers from next January."

It said Agip KCO, which is operating Kashagan under a production-sharing agreement with a fixed-tax regime, could be subject to the export duty if Kazakhstan has its way.

"Kazakh authorities have released a new draft tax code that would fundamentally alter the country's tax structure, with the hydrocarbon sector shouldering more of the burden to offset tax breaks for the non-oil sector, but the threat to subject all oil producers to the export duty appears to have been a bluff geared to push Agip KCO into an agreement on the Kashagan project," Global Insight said.

Possible changes of taxes for the consortium should be considered by parliament and President Nursultan Nazarbayev's office, said Mynbayev, who added that the consortium sought assurances of stability of tax and export regimes for the project.

"In our view, [tax changes] would create economic difficulties for the project," said Mynbayev, who explained that Kazakhstan has already earned enough compensation for the project's delays. "Two memorandums that have been signed can serve as foundation for long-term and constructive work by both sides," he said.

Mynbayev said the consortium's request to extend the contract on Kashagan beyond 2041 was "categorically" rejected, and that Kazakhstan would not compensate the consortium's costs if production started later than Oct. 1, 2013.

Agip KCO stakeholders include Eni, operator, 16.81%; ExxonMobil 16.81%; Total 16.81%; Royal Dutch Shell 16.81%; Kazmunaigaz 16.81%; ConocoPhillips 8.40%; and Inpex 7.55%.

Contact Eric Watkins at hippalus@yahoo.com.

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

BHI: US oil rig count rises for first time in 30 weeks

07/02/2015 A sudden 12-unit jump in oil-directed rigs during the abbreviated week ended July 2 represented their first rise since Dec. 5, 2014, and helped lif...

Quicksilver Canada gets LNG export approval

07/02/2015 Quicksilver Resources Canada Inc. has received approval from the National Energy Board of Canada to export 20 million tonnes/year of LNG from a pos...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Origin lets contract for Otway basin fields

07/02/2015 Origin Energy Ltd., Sydney, has let a $1.3 million (Aus.) contract to Wood Group Kenny for provision of a detailed engineering design for the onsho...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...
White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts


OGJ's Midyear Forecast 2015

When Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected