Azernews.Az

The extension of a production sharing agreement (PSA) on Kazakhstan's giant Kashagan oilfield project is unlikely, an energy expert says.

"Today, Kazakhstan does not need agreements on production sharing," the Department Director of Due Diligence "2K Audit - Business Consulting / Morison International", Alexander Shtok, told Trend news agency. "This mechanism was required when the country had no funds for development of the oil and gas industry. Currently, Kazakhstan is experiencing no difficulties in attracting investments, this is why cooperation with investors in the PSA format is not relevant. Moreover, Kazakhstan is trying to reconsider the PSA conditions for foreign investors in their favor. Therefore it will be difficult to extend the terms of the PSA on Kashagan."

The PSA on Kashagan was signed between the Kazakh government and investors in 1997 for 40 years. It guarantees the refund of outlays on field exploration through commercial oil production. The foreign investors are currently trying to extend the contract terms for another 20 years due to 'economic viability'. Such a scenario is extremely disadvantageous for Kazakhstan.

According to the expert, apart from withdrawal of ConocoPhillips, which has already been declared, other changes in the project shareholders are unlikely.

"As for the other participants in the project, given the proximity of the project's launch - production is planned to be started as early as next year, it is unlikely that the shareholders will sell their stake in the Kashagan," Shtok said.

The expert noted regarding the motives of ConocoPhillips, which announced intention to sell its 8.4 percent share in the Kashagan, that they are associated with the company's strategy to reduce the debt burden.

"As part of this strategy, the company is selling assets around the world. Apparently, the Kazakh project is also amongst those assets," Shtok added.

The expert believes that Kazakhstan's national oil company KazMunaiGas is most likely to buy the share of ConocoPhillips.

"The company has already shown its interest in the assets of ConocoPhillips in Kashagan. Given that the state has a priority right to purchase a share, it is unlikely that other shareholders will be able to enter the project. Moreover, in recent years, Kazakhstan is actively increasing its share in international projects and is unlikely to miss the opportunity to increase its share in Kashagan," Shtok said.

Since the beginning of Kashagan's development, Kazakhstan has been increasing its share from 8 to 16.8 percent. In 2012, the country, represented by KazMunaiGas company, acquired a ten percent stake in the Karachaganak project, in which it has not previously participated.

Kashagan is one of the largest fields discovered in the past 40 years. Kazakh geologists estimate geological oil reserves at 4.8 billion tons. According to the project operator, total oil reserves are 38 billion barrels (six billion tons), with a recoverable volume of about 10 billion barrels. Natural gas reserves are estimated at over one trillion cubic meters.

The companies, develop the project, are planning to begin production on Kashagan in the first quarter of 2013.

At present the Kashagan project participants are Eni, Royal Dutch Shell, Exxon Mobil, Total and KazMunaiGas, which owns equal shares (16.81 per cent), as well as ConocoPhillips - 8.4 per cent and Japan's Inpex - 7.55 per cent.