The creation of a new operating company rules out operatorship in Kashagan
Now Reading: The creation of a new operating company rules out operatorship in Kashagan

PUBLISHED  08:00 November 10, 2008

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The government of Kazakhstan and the consortium AGIP KCO have recently signed in Astana agreements that dot the I’s and cross the T’s in the difficult negotiations on Kashagan that lasted almost a year and a half. The First Vice-President of the national company KazMunaiGas (KMG), Maksat Idenov, has explained the agreements achieved in an interview to New Europe correspondent in Astana Kulpash Konyrova.

Eighteen months ago, when serious problems arose with the implementation of the Kashagan project and when Kazakhstan’s plans for “big oil” got put on hold yet again, Kazakhstan President Nursultan Nazarbayev appointed Idenov to lead negotiations between the Kazakh government and the consortium AGIP KCO.

This appointment was not accidental. Idenov had had a good “run-in” in the foreign oil companies operating in Middle East, Northern Africa, and South Asia. He is fluent in English and he knows every nuance of the management process, so he can talk with foreign bosses on equal terms.

Mr. Idenov, the main question is about time: when will the first Kashagan oil finally happen?

According to the agreement signed after the completion of the negotiations, the production at Kashagan should start on December 1, 2012. Having said that, for the consortium, the first oil deadline has been set for December 31, 2013. What it means is that the first warning bell will ring for the consortium on December 1, 2012, and the last – on December 31, 2013.

So the first oil should be received within the period from December 1, 2012 to December 31, 2013, that is, within one year. Should the consortium go beyond 2013, then the participants will be on their own to bear the costs, they said. At the same time, I would like to remind that the formation pressure at that field is very high.

Imagine, it is of such force that if you were to drill a 5,000- to-7,500 metre well, the massive pipes of the same length could shoot out from it as a silk thread. Therefore, Kashagan is a difficult field, and it is important to consider every detail.

And what is the amount of costs?

It is better to say the amount of investments that the republic will have to cover with the future oil, when it starts. So far, the investments into the Kashagan project have totalled over 12 billion US dollars.

Please clear the air with regard to the future production volumes from Kashagan as the numbers provided by AGIP KCO and by KMG differ. The former says 370,000 barrels a day, the latter – 450,000 barrels a day…

The pilot stage of the project consists of three phases. The first phase is 150,000 barrels a day, the second phase is also 150,000 barrels a day, and the three phases together – 450,000. The interval between the phases is one year. AGIP’s number of 370,000 barrels a day is purely technical data, but when we are at the pilot stage, we will receive 450,000 barrels a day, after which a full-scale development will begin. The production will eventually grow from 450,000 to 1.5 million barrels a day.

How do you evaluate the results of the negotiations?

If we compare the earlier agreements with what our negotiation group has achieved, the difference is considerable. Before, the participants of the consortium were only to pay 300 million dollars for rescheduling the production to 2010, and then – goodbye.Now we have achieved, first, that if there is no oil after 2013, the costs will not be covered, second, before the costs can be covered, the consortium will have to pay to the government a so called priority fee, the amount which will depend on the world price for oil.

For example, for the purposes of discussion, with the oil price of 85 dollars per barrel over the term of the Kashagan contract (2012 – 2014), they would have to pay 74 billion US dollars. This is a sum that was not written into the PSA. And even if the oil price proves to be lower than 85 dollars per barrel and, subsequently, the priority fee lower, too, in any event, this amount will still be higher than the 300 million dollars of the original agreement. In addition to that, the consortium will have to pay royalty, taxes, and other levies.

All these monies will be used for schools, roads, health care, clean water, and other social programmes. But the main achievement of the negotiations is the almost doubled interest of Kazakhstan in this project – from 8.33 percent to 16.81 percent. All these are the demands that our negotiation group put forward as compensation to the republic for yet another delay of the first production from Kashagan.

Having said that, I would like to mention that the negotiations were straightforward, open and mutually respectful, following all the existing international principles. There was no pressure, and we thank our partners, the company with a world name, for admitting their outstanding issues and for agreeing to increase our share, and to begin everything from scratch. They have promised that they will have oil before 2013. All this has been achieved through negotiations.

After the completion of the negotiations, it was announced that a new operating company would be established to develop Kashagan. What will be the distribution of roles in it?

It will be a joint operating company. Italy’s ENI will be responsible for the operating face and for the onshore. ExxonMobil will be responsible for drilling, and Shell for the offshore infrastructure, and KazMunaiGas (KMG), with Shells’ assistance, – for production. France’s Total will coordinate the project and will be responsible for making sure that each participant of the project concentrates on their job. ConocoPhillips will be responsible for audit and budget control. But once we are skilled enough, the national company will single-handily manage this whole asset.

It follows from your words that now Total, and not ENI, will be the project operator?

No. The creation of a new operating company rules out operatorship. It will be a single structure. It would be more accurate to say that in two to three months, ENI will become a member of the operating company.

When will the new operating company be established?

The process of its establishing will start on November 3 this year. The head office will be located in Astana. The preparation period may take several months, from one to three.

The Minister of Energy, Sauat Mynbaev, said the first vice president in the new operating company would be a Kazakh national!

The vice president of the new company for Kashagan will be determined by the management of KMG and the ministry of energy. And they will start this task on November 3.

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