Karachaganak group says increase in development costs offset by reservoir performance

Jul 31, 2000 02:00 AM

by Charles Coe

The Karachaganak Integrated Organisation (KIO) consortium has conducted a comprehensive review of its Phase II plans for development of the Karachaganak condensate field in north-west Kazakhstan and announced that the cost of carrying out the current phase will increase by more than 70 % to $ 1.18 bn, compared to the 1997 estimate of $ 687 mm.
KIO member BG International released a statement on July 28, saying that the increase will be offset by a substantial decrease in post-2003 drilling costs that will leave the total capital cost of the development "substantially unchanged." The additional expenditure would be phased over six years.
The revised figures, the statement said, "result from a better understanding of the resourcing and logistical scope and complexity of the project." It stated that the decrease in post-2003 drilling costs would result from improved reservoir performance over the last two years.
Phase II covers sales up to 9 mm tpy of condensate (180,000 bpd) and 6 bn cmpy of natural gas and the export of liquids to world markets via the Caspian Pipeline Consortium (CPC). The field development plan and arrangements for access to the CPC line were secured recently.

The development program has now entered a major construction phase, according to the BG statement, and the site will see extensive work between now and the second half of 2003. Detailed engineering work is essentially complete, with all main procurement and construction contracts let or bid and the majority of long-lead materials ordered, the statement said.
KIO has now entered an advanced stage of awarding the main drilling and construction contracts, while the target for first exports to the CPC has been rescheduled for the second half of 2003, instead of early 2002, the previous target. This is about two years after the CPC expects to begin operations.
BG said that the change in schedule "has been caused by a combination of the increases in scope and by significant delays in key approvals for the field development plan, and for access arrangements to the CPC pipeline." Delays have been attributed to a lack of infrastructure and skilled personnel.

Since 1997, production at Karachaganak has increased to the current rate of 150,000 bpd of oil equivalent compared to 90,000 bpd of oil equivalent three years ago. A broad case of "creditworthy" customers has been established and operating costs have been halved, the statement said.
BG estimates that the improved reservoir performance will lead to a 15 % increase in its equity reserves in the Phase II development and says the revised cost figures yield to BG full cycle cost for reserves acquisition, delineation, appraisal, development and production of around $ 3.50 per barrel of oil equivalent. This, it says, compares to an industry average of around $ 8.00 per barrel of oil equivalent and BG's slated 2003 target of $ 5.60 per barrel of oil equivalent for its whole portfolio.
Phase III is to develop liquids production to 12 mm tpy (240,000 bpd) and deliver 16 bn cmpy of gas for sale. This phase is subject to gas market development with implementation expected after 2003.

Last December, KIO and the Kazakhstani government signed an amendment to the final Karachaganak production-sharing agreement (PSA) providing for the construction of a 460 km pipeline from Bolshoi Shagan to Atyrau in Kazakhstan. The pipeline will link up with the CPC trunk export line and provide KIO with means to export its production.
"Section one" of the pipeline is a 190 km. stretch between Karachaganak and Bolshoi Shagan. The cost of this section has been factored into the budget. The cost of "section two" has been estimated at $ 280 mm.
British Gas and ENI, through its subsidiary Agip Karachaganak BV, are co-operators for the concession and each hold 32.5 % interest in KIO. Texaco holds 20 % and LUKoil holds 15 %. The PSA between the KIO and the Kazakhstani government was signed in November 1997.
The PSA covers an area of 640.5 sq km in the Pre-Caspian basin in north-western Kazakhstan. It was officially awarded in January of 1992 for a 40-year period but numerous changes have been made since then, most recent of which to affect the partnership came in October of 1998, with Texaco joining the consortium and Gazprom leaving.
Karachaganak's recoverable reserves are put at 2.4 bn barrels of oil and condensate and 16 tcf of natural gas. KIO intends eventually to increase oil and condensate production to 260,000 bpd and gas production to 1.4 bn cfpd. Most of KIO's liquids will be shipped via the CPC.

Regarding the CPC pipeline, it will have an initial capacity of 560,000 bpd when it comes on stream in mid- to late 2001. This will later be boosted to 1.3 mm bpd. The pipeline will run from Kazakhstan's Tengiz field to Russia's Black Sea port of Novorossiisk, and KIO's liquids will enter the CPC line at Atyrau.

Source: NewsBase
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