Azernews.Az

By Aynur Jafarova

Kazakhstan's KazMunaiGas JSC (KMG) plans to conclude the negotiations with the U.S ConocoPhillips on acquisition of its share in the North Caspian project (the Kashagan field).

"We are working on this issue," Deputy Chairman of the Board of Geology and Perspective projects of KMG Kurmangazi Iskaziyev said on August 19.

According to him, the deal is planned to be concluded by late 2013.

In July 2013, the Kazakh Oil and Gas Ministry said Kazakhstan intends to use the priority right to acquire the share of ConocoPhillips in the production sharing agreement on development of the giant Kashagan field located in the Kazakh sector of the Caspian Sea.

According to the report, the ministry has sent an appropriate governmental notification to the U.S company to state its intention on use of the priority right provided by the Kazakh law "On subsoil and subsoil use" and to acquire the interest of ConocoPhillips in North Caspian Sea Production Sharing Agreement at a rate of 8.4 percent.

KazMunaiGas will act as a buyer of ConocoPhillips' stake in the North Caspian project.

Earlier, KazMunaiGas head Lazzat Kiinov said in an interview with Reuters that the Chinese company CNPC will buy a stake in the Kazakh Kashagan oil field on the Caspian shelf by paying over $5 billion for it.

So, KazMunaiGas will sell the package and receive a package of another participant - ConocoPhillips, which will withdraw from the project.

Last year, Conoco Phillips announced plans to sell its 8.4 percent stake in Kashagan to Indian ONGC Videsh Limited for $5 billion. Other partners of the consortium did not use their pre-emption rights.

Kashagan is one of the largest fields discovered in the past 40 years. Recoverable oil reserves of Kashagan are estimated at 11 billion barrels, whereas total geological crude reserves stand at 35 billion barrels. It is believed to be the largest oil field in the world after Prudo Bay in Alaska. Besides, natural gas reserves are estimated at over 1 trillion cubic meters.

Oil production from the field

Head of KazTransGas Serik Sultangali believes that the oil extraction at the Kashagan field will start in the coming months.

"I am afraid to say when exactly the oil extraction will start, but it is supposed to occur in the subsequent months," he told journalists on Monday.

Earlier, the deputy executive director of the International Energy Agency (IEA) Richard Jones, in his speech at the international conference "The development of the Caspian shelf" in Atyrau, said oil extraction in Kashagan is to start in 2014, though earlier it was reported officially that the extraction period is October 2013.

However, Kazakh Oil and Gas Minister Uzakbay Karabalin said earlier that the commercial oil production at Kashagan field will begin no later than this October, and perhaps even earlier.

The Kashagan commissioning process is a sequential process that involves more than 40 actions preceding the commencement of production and gradual reaching the target level because of the scale and complexity of the project.

The production volume is planned to gradually increase for the second half of 2013. It is expected that around 180,000 barrels per day will be extracted at the first phase, while this figure will reach 370,000 barrels per day at the second phase.

Experts believe that increase of oil production in Kazakhstan completely depends on the start of the Kashagan production as it is currently the only oil field capable of significantly boosting oil production in the country.

The future development projects would open up the opportunities to increase the production volumes significantly and it will turn Kashagan into one of the largest suppliers of the global energy market.

Gas prices

Cost of the Kashagan gas will depend on various factors, Director General of KazTransGas Serik Sultangali believes.

He recalled that cost of gas is determined by the government by considering the social meaningfulness of blue fuel for the population of the country.

On August 19, Kazakhstan's capital Astana hosted the ceremony of signing of an agreement on purchase and sale of gas, extracted from the Kashagan field. The agreement was signed between the Kazakh national operator KazTransGas and the contract companies of the North Caspian project.

Kazakh KazTransGas will purchase all volume of the Kashagan gas produced in the first stage till the expiration date of the agreement on the division of production on the North Caspian project by 2042.

The target annual volume of delivery of the Kashagan gas will amount from 2.5 to three billion cubic meters which will allow consolidation of gas volumes for domestic markets to export.

The preliminary distribution of shares will be as following: from 70 to 80 percent of the produced gas will be delivered to the Kazakh population, the remained 30 or 20 percent will be exported.