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Kazakhstan exploration booms despite constraints
by Alan Waldman, Los Angeles
(9/20/2005) Licensing, exploration, development, and re-development of Kazakhstan's oil and gas fields are proceeding briskly in numerous onshore and offshore areas despite the country's onerous new tax structures and recent limits on foreign ownership. In May, the government in Astana passed a new law which limited foreign firms to 50% participation in new production-sharing agreements (PSAs) in the Kazakh sector of the Caspian, made state-owned Kazmunaigaz the operator of every new venture, and required all commercially viable hydrocarbon finds to be refined in Kazakhstan.
Nonetheless, the Kazakh government is planning to license up to 200 additional blocks in its sector of the Caspian over the next two years, as part of its program to triple its output from 2004's 1.22 million b/d of oil to 3.5 million b/d by 2015. Meanwhile, fresh progress is being made in the planning and development of new export links for Kazah oil and gas to China, the West, and to other Central Asian nations.
Exploration and development are ongoing in the landlocked country's four huge super-fields, and promising finds have recently been made in two dozen other areas. Moreover, Kazakhstan national energy company Kazmunaigaz has just signed a US$23 billion production-sharing agreement with Russian government-owned Rosneft for the development of the giant Kurmangazy Field in the central Caspian Sea. That formidable field is believed to contain approximately 7.3 billion bbl of recoverable oil reserves and could add up to 600,000 b/d in the next decade.
Kazakhstan recently estimated its proven and probable oil reserves at 29 billion bbl. In January 2005, its proven natural gas reserves totaled 65-70 Tcf. The country has recently begun to realize its enormous production potential, and, with sufficient export options, Kazakhstan could become a major world energy producer and exporter over the next decade.
Kazakhstan's oil production rose about 15% in each of the past six years, driving significant annual economic growth. The country currently has about 210 hydrocarbon fields (including over 100 oilfields and about 70 oil-and-gas fields) which underlie about 62% of the nation's territory. Production growth slowed to 10% in the first half of 2005, due, no doubt, to new government restrictions on PSAs and on associated gas flaring. The new 50% limit on foreign participation in PSAs - augmented by a new tax structure that increases as oil prices grow - has raised the government's share of oil income to between 65% to 85%.
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| Karachaganak Field. |
The country expects the 80% of its growth over the next decade to come from four enormous fields: 1 million b/d from Kashagan, 700,000 b/d from Tengiz, 600,000 b/d from Kurmangazy, and 500,000 b/d from Karachaganak. Smaller fields account for the balance.
Most of Kazakhstan's proven natural gas reserves are located in the west of the country, with roughly 25% (6-20 Tcf) situated in the Karachaganak oil and gas condensate field, where production should peak at about 1 Tcf around 2010. Kakakhstan's gas production increased almost 24% during the first half of 2005, to 570 bcf per year. The country plans to increase its gas production to 1.66 Tcf by 2010 and to 1.84 Tcf by 2015.
The Kashagan oilfield - the world's fifth-largest in terms of recoverable reserves (30 billion boe, which could double as development proceeds) - is located off the northern shore of the Caspian Sea, near the city of Atyrau. BG is selling its 16.7% share for $1.23 billion - half to Kazmunaigaz and half to the other consortium participants. However, negotiations over that sale, plus environmental concerns and a frozen Caspian Sea each winter have delayed the beginning of production (estimated at 75,000 b/d) to 2008. Development of the field will cost about $29 billion, and production should peak at 1.2 million b/day in 2016.
Before the sale of BG's interest, Kashagan shares were held by operator Eni, Total, ExxonMobil, and Royal Dutch Shell, each with 20%, by ConocoPhillips with 11.67%, and by Inpex with 8.33%.
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| Kashagan drilling platform. |
The Tengiz Field, located in the swamplands along the northeast shores of the Caspian Sea, has estimated recoverable oil reserves of 6-9 billion bbl. For the first half of 2005, its consortium (Chevron 50%, ExxonMobil 25%, Kazmunaigaz 20%, LukArco 5%) produced 267,000 b/d of crude oil and condensate, or approximately 21% of Kazakhstan's daily crude oil and condensate. It is engaged in a US$3 billion expansion, designed to boost production to approximately 450,000 bbl/d by 2006. Tengiz could potentially produce 1 million b/d by 2009. Due to current government regulations against the flaring of associated natural gas, Tengiz's production may stagnate until a plan to re-inject all the associated sour gas comes online in May 2006.
The Karachaganak oil and gas condensate field, onshore in northern Kazakhstan, near the border with Russia's Orenburg Field, is being developed by a consortium led by BG and Eni. The field holds reserves of more than 2.4 billion bbl of oil and 16 Tcf of gas, recoverable over 40 years. Karachaganak production averaged 230,000 b/d during the first half of 2005 and should rise to 500,000 b/d by 2010. In the past two years, exports have increased through a new pipeline spur south to Atyrau, connected to the country's major export pipeline, the Caspian Pipeline Consortium (CPC) project.
The 980-mile long CPC, which connects Kazakhstan's Caspian Sea oil with Russia's Black Sea port of Novorossiysk, is undergoing a $1.5 billion expansion, which should increase the pipeline's peak capacity to 1.35 million b/d by 2009. In addition, China and Kazakhstan are currently working on an $850 million 513-mile-long oil pipeline, which is expected to open in 2006. And after eight years of stalled negotiations, China has reopened talks with Kazakhstan over building an expensive, but much-needed, major trans-border gas pipeline. Kazakhstan is also considering a subsea trans-Caspian pipeline connecting to the1-million-b/d Baku-Tiblisi-Ceyhan pipeline, which was completed in May 2005. The proposed link could allow the export of up to 600,000 b/d of oil to the Turkish Mediterranean port of Ceyhan.
Until recently, Kazakhstan had been a natural gas importer, but as production now exceeds consumption, the country is planning to build a 120-mile gas pipeline connecting its big Amangeldy gasfield (with estimated reserves of 1.8 Tcf) in the south with the rest of its distribution system. The Amangeldy fields that have been developed are currently producing approximately 880 million cf a year.
One of the most promising Kazakhstan prospects is the Tyubkargan Block, which encompasses more than 1,300 sq km on the Tyubkaragan peninsula, a near-sea level expanse of sand flats that are often submerged, requiring a jackup rig for drilling. In this 50-50 joint venture between Russia's Lukoil Overseas and Kazmunaigaz, Lukhoil is now drilling its first exploratory well to 2,500 meters in a water depth of seven meters. Reserves in this field are estimated at 2.3 billion bbl of oil, from which peak production of 49.7 million bbl a year is anticipated (to lifetime total production of more than 781 million bbl).
Equal 50% partners Nelson Resources and China National Petroleum Corporation (CNPC) have invested $800 in the North Buzachi Field, which has estimated reserves of 1.48 billion bbl of crude oil (and where 2004 production was 8,000 b/d). North Buzachi contains low gravity 19º API crude in shallow Jurassic and Cretaceous reservoirs, to a depth of about 600 meters.
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Tengiz production facility. |
CNPC is also the 88% shareholder in the Aktobe Field, where a $4.1 billion investment is seeking estimated reserves of 1 billion bbl oil. January-February 2005 production was 116,000 b/d of oil, and 2004's total output of natural gas was 77 bcf.
Kazakhstan's Ministry of Energy and Mineral Resources is set to award a Korean consortium exploration and development rights to the Zhambyl Field (with 600-800 million bbl of recoverable oil reserves) in the Kazakh sector of the Caspian Sea. The field will be jointly operated by Kazmunaigaz (73% owner) and the Korean National Oil Corporation (9.45%), partnered with Korea's SK Corporation (with 6.75%), LG Corporation (5.4%) and Samsung and Daesung Industrial (2.7% each).
Oman Oil is negotiating with the Kazakh government to acquire development rights to the North Caspian Sea's Zhemchuzhina Field, which holds an estimated 710 million bbl of oil reserves. Oman already holds a 7% interest in the CPC, which carries export oil from Kazakhstan through southern Russia to the Black Sea.
The combined Magyar Olaj-es Gazipari (MOL), the Hungarian national oil company, and Hungary's Vegyepszer, are a 49% partner with Kazmunaigaz (51%) in the Emba Field in Northwest Kazakhstan, which has 500 million bbl of estimated oil reserves. Last year it produced 57,7000 b/d of oil and 3.1 bcf of gas.
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Camels on South Alibek Field. |
Nelson recently was high bidder for a 50% interest in the Arman Field (with estimated remaining reserves of 10.8 million bbl of oil). Nelson (a 40% stockholder) is purchasing Chapparal's 36% stake in the Karakuduk Field, which has estimated proved plus probable reserves of 63 million bbl of oil. Nelson (with 50% of the operating consortium) will soon start full field development of the Alibekmola Field and pilot field development of the Kozhasai Field; in the first quarter of 2005 it received 26,300 b/d from 31 wells in both fields. The Alibekmola Field has proven and probable reserves of approximately 196 million bbl, with another 154 million possible.
China's Big Sky Energy recently conducted a successful workover of a well in the Karatal Field, which indicates good prospects for a redevelopment of the field. It also successfully drilled in the Moroskoe Field on the northeast Caspian seashore. In the Liman and Atyrau onshore licenses, north of the city of Atyrau, Big Sky is exploring for at least 167 million bbl of potential reserves.
In other recent developments: PetroKazakhstan found oil with three wells in the Kolzhan Block but is now the focus of a purchase probability by CNPC still to be approved by the Kazakh government; Caspian Holdings has discovered two oil producing zones with its Well 106 drilled in the Northern Kazakh Zhengeldy Field (in the Necomian and Triassic zones) and encountered a significant 120-meter oil-bearing structure in the Jurassic zone; Transmeridian Exploration's crude oil production from its South Alibek Field, in the second quarter of 2005, reached an all-time high of 118,000 bbl; and BMB Munai, which recently began drilling in the Aksaz Field, more than doubled production from its wells in the Aksaz, Dolinnoe, and Emir Fields in the Mangyshlak Basin to 1,200 b/d.
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