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After A String Of Setbacks, The Giant Kashagan Field Is Showing Results

After a rough start, the blood sweat and tears poured into the Kazakhstan's Kashagan oil field in the Caspian Sea are starting to show some results. This past month, the field produced around 201,000 tonnes or 1,698,450 barrels of oil according to data from the country’s energy administration.

The October output for the field reached about 52,600 barrels per day, which while a promising start, is still below the estimated number of 75,000, which is the level needed for the field to hit stable production. Some oil majors had conducted test pumping in September, and a limited amount of product was exported.

Kazakhstan’s efforts to develop its resources in the Caspian have been costly in terms of money, time and work. The Caspian fields have come with a price tag of $55 million for development.

Production work in the Caspian fields actually kicked off about three years ago, but it’s been a rocky three years. One month after operations got underway, work came to a halt when a gas leak led to the discovery of a 200 kilometer stretch of pipeline riddled with micro-cracks caused by the high sulfur content of the gas being transported.

Adding to the production woes in the Kashagan oil field have been issues with high-pressure reservoirs that have had a high sour gas content, not to mention weather. The Caspian experiences freezing conditions that create pack ice, which in turn presented other obstacles in terms of logistics. Operators were forced to mitigate those issues by creating artificial islands used to store equipment, to house equipment, staff members and to create space for processing facilities. Investors in the Kashagan operation include KazMunayGas, Chevron, Eni, ExxonMobil, Royal Dutch Shell, Total, CNPC and Inpex; the operator is the North Caspian Operating Company.

While recent developments in the Kashagan field are good news for Kazakhstan, those investors will still be tasked with recouping their money. A Fitch Ratings report last month noted “It will be a challenge for partners to recover their investment in the project under our oil price projections, making an expansion of the project unlikely given other risks. As for many other mega-oil-and-gas projects launched over the last couple of years, it will be difficult for Kashagan to recover its capex based on our long-term Brent price assumption of [US$65/bbl], despite the weak tenge.

Lincoln Brown for Oilprice.com

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