Alan Petzet
Exploration and Economics Editor
Oil & Gas Journal
HOUSTON, Nov. 29 -- The filling and start-up of oil shipments through the Caspian pipeline are significant events for a region that has at least tens of billions of barrels of oil and condensate to contribute to an energy-hungry world.
Other transportation issues remain to be resolved in order that the oil and gas wealth of the former Soviet republics reaches market.
Formal dedication of the Caspian pipeline took place Nov. 27 at the terminal on the Black Sea near Novorossiysk, Russia, end point of the 987-mile pipeline that originates at supergiant Tengiz oil field in western Kazakhstan (OGJ Online, Nov. 27, 2001).
Tanker shipments from Novorossiysk started in October; oil first reached the terminal in August. The pipeline should attain capacity of 600,000 b/d in the first half of 2002. Construction began in May 1999.
It is not surprising that a pipeline project such as this involves heavyweights like the governments of Russia, Kazakhstan, and Oman, and companies like ChevronTexaco Corp., LUKARCO BV, Rosneft/Shell Caspian Ventures Ltd., and Mobil Caspian Pipeline Co.
ChevronTexaco is the pipeline's largest shipper by virtue of its interests in Tengiz and supergiant Karachaganak gas, condensate, and oil field in Kazakhstan southwest of Orenburg, Russia.
Some of these members of the Caspian Pipeline Consortium have been involved in planning for this outcome since the 1980s.
It is different to see smaller players that have proved the mettle to survive a wait nearly as long, and start-up of CPC has implications for construction of other pipelines in the area.
Hurricane's interests
As reported, BP PLC is selling one part of its stake in CPC, held through Kazakhstan Pipeline Ventures LLC, for $100 million to Hurricane Hydrocarbons Ltd., Calgary.
Hurricane would obtain, among other things, preferential rights of access to the Caspian pipeline for shipment of 64,000 b/d at the shareholders' tariff.
Hurricane is a Canadian independent that had market capitalization of $430 million (US) as of Nov. 22 and net debt of $150 million as of Sept. 30. It also produces nearly 100,000 b/d from several fields west of Kumkol in the South Torgay basin, 600 miles east of the Caspian pipeline's nearest point.
The company expects Kazakhstan to average production of 850,000 b/d of oil next year and 1.95 million b/d in 2010.
The company's reserves, all in Kazakhstan, were 178.7 million bbl of proved developed oil at the beginning of the year. There are proved undeveloped reserves of 155.2 million bbl of oil and 31.9 bcf of gas. Adding probable reserves kicks the total above 500 million bbl, and much drilling is still to be done.
Hurricane told analysts at end-November it plans $144 million in capital spending in 2002 in Kazakhstan, including the drilling of seven exploration wells.
Once near insolvency, Hurricane earlier this year fended off a hostile takeover bid by shareholders in Kazakhstan (OGJ Online, May 16, 2001).
Hurricane's output averaged 97,770 b/d in the first 9 months of 2001 and around 110,000 b/d in October. This is 13% of country production.
To reach its 2002 target of 150,000 b/d, Hurricane plans to capitalize on sales through CPC, increase control over rail export through leasing of rail cars, and maintain and increase the profitability of export routes.
Completion of the acquisition of the stake in CPC from BP, expected in December 2001, will make Hurricane a partner with state Kazakhoil and give the Canadian company the right to ship at least 64,000 b/d on CPC.
Hurricane will continue to ship oil via existing routes through Aktau, Atyrau-Samara, and others. Its 2003 goal is 180,000 b/d.
The next consideration is a transportation link between Hurricane's Torgay fields and its newly developing QAM oil fields to the Caspian pipeline. The fields are 500 miles from CPC at its nearest point.
The government indicated it would prefer that the state pipeline company KTO build and pay for a 104-km pipeline from the fields to a railhead at Aralsk, north of the Aral Sea, Hurricane said. Hurricane itself prefers a shorter 177-km pipeline to rails at Dzhusaly. Either route would save shipping the oil through Kumkol and Shymkent, a 1,400 km circuit. Talks are in progress.
At its initial phase rate, the CPC pipeline would transport less than 10 billion bbl of oil during the 40 year life its owners discuss. The owners could expand capacity to 1.5 million b/d.
Potential in this region is many times that volume, other independents are active there, and numerous smaller-scale joint ventures stand to benefit from operation of the CPC pipeline over time.
Contact Alan Petzet at [email protected]