Natural Gas. It’s Our Business
BG Investment Portfolio
BG Kazakhstan is part of BG Group, a leading international energy company, which is engaged in activities spanning the entire gas chain across some 20 countries.
As part of the Company's drive for top quartile performance, an in house study is made each year benchmarking BG's upstream performance against a peer group of 15 oil and gas companies using company reported data from SEC returns. BG retained leadership in measures such as unit finding and development costs, operating costs and organic reserve replacement.
BG ranked 1st in overall performance in the study - driven by continued low costs, good reserves measures and improved financials relative to the peer group. This is the second consecutive year that BG has come 1st overall and it is in fact our best performance yet with top quartile positions in 13 of the 21 measures.
BG in Kazakhstan
BG has been active in Kazakhstan for over a decade. During this time, BG has played a leading role in the development of Kazakhstan’s oil and gas industry – it was one of the first Western companies to take an interest in the country’s vast mineral potential. Today it is the largest British investor in the country holding 32.5% interest in the giant Karachaganak oil and gas condensate field and jointly operating it with the Italian energy company, ENI. BG also holds a 2% equity stake in the Caspian Pipeline Consortium (CPC), which links Kazakhstan’s oil reserves to world markets.
In early 2003, BG announced the disposal of its 16.67% interest in the North Caspian Sea Production Sharing Agreement, which includes the Kashagan field. Kashagan is one of the largest oil fields in the world and BG has been a part of its discovery and development. While there are sizeable gas reserves associated with this field as well, the balance of the field is heavily weighted to oil. When considering this asset in the context of its broader integrated gas strategy, BG felt it was better to focus on the operation of Karachagnak and divest it's interest in Kashagan.
BG Unlocking Value in One of its Largest Investments
The production of first oil from Karachaganak marked the culmination of a massive five-year project in which BG invested more than US$1 billion. This phase of the project, Phase II, was completed in July this year, and included a 635 km pipeline, which connects the field to the CPC pipeline at Atyrau. New gas and liquids processing facilities were built, along with gas re-injection facilities and a 120MW power station. In addition, more than 100 wells were worked over, paving the way for a significant increase in production. At a cost of approximately US$4 billion, the Karachaganak facilities represent one of the largest developments in the world. At the peak of construction last summer, more than 20,000 people were employed on the site.
With completion of the new facilities, output from the field is set to increase to more than 10 million tonnes a year, or around 200,000 barrels per day. About 70% of the field’s condensate will be exported via the CPC pipeline, with the remainder going to Orenburg. Up to seven billion cubic metres of gas a year will also go to Orenburg.
Future plans allow for increased production of liquids, with the associated gas being sold into emerging gas markets in Kazakhstan, or possibly exported via the Russian system.
Focus on Kazakh Content and Nationalisation of Staff
Throughout the project there has been a strong emphasis on Kazakh participation, and the venture’s Kazakh Content programme has been recognized by the government as a reference model for the oil and gas industry in Kazakhstan. The target figure of 43% Kazakh content, which includes both labour and equipment, was exceeded last year and rose as high as 60% during the recent construction period when over 80% of the labour forces was Kazakh.
The project has had a major impact on the local economy with a number of initiatives established to encourage local content and technology transfer to Kazakh companies.
On the nationalisation of staff, all targets have been met or exceeded. All clerical and skilled staff are Kazakhs, as are 48% of professional and supervisory staff, eleven per cent of managers are Kazakhs – well over the 2002 target of six per cent. Karachaganak venture also runs a major programme to encourage Kazakhs to develop their managerial skills. The development of managerial skills enables local staff to assume increasing levels of responsibility within the company.
Development of the field is bringing significant income to both the national and local economies and the project is providing long-term jobs to many local professionals.
Apart from its contribution towards job creation and the local economy at Karachaganak, BG and its partners provide US$10 million a year towards social projects. This contribution assists in meeting the social and infrastructure needs of Western Kazakhstan.
A major environmental remediation programme was undertaken at Karachaganak, which included the dismantling and removal of 28 abandoned Russian drilling rigs. More than 70,000 tonnes of waste has been moved to safe storage and 52 hectares of land has been restored. An area that experienced a blow-out in 1986 is being restored with natural steppe grasses and crops of barley, wheat and corn.
Corporate Responsibility
BG is always mindful of its corporate responsibilities and the importance of its contribution to the communities in which it operates.
BG is supporting the establishment of a number of post-graduate courses at the recently formed Kazakh-British Technical University. These will provide advanced high-quality training for the oil and gas industry in subsurface engineering and in asset management, the construction and management of surface facilities. The first courses will begin in 2004.
This is not the first initiative in the educational field, which BG Kazakhstan has supported. Over the past nine years, the Company has funded the position of Chair of Environmental Engineering at the Almaty Institute of Power Engineering and Telecommunications. In addition to supporting a Masters Programme for Environmental Engineering, research programmes directed by the Chair have made significant improvements in the Kazakhstan environment. Such programs have focused on pollution and water resource management in areas such as the River Nura, Aral Basin and River Irtysh.
BG Kazakhstan has contributed medical equipment as well as toys, playground equipment, teaching material to Almaty orphanage. BG’s financial support enabled building refurbishments and the purchase of laundry equipment. In Astana, BG supports the school for disabled children. Over the past two years BG has contributed 2 million tenge (around US$13.5 thousand) into the school’s refurbishment, workshop equipment and a computer class.
Future Plans
Kazakhstan’s oil and gas industry, with its hundred-year history, of course already has a long list of achievements to its credit. BG however, believes that, with Karachaganak and other strategic projects moving forward into major new phases, the industry is on the threshold of new levels of achievement. BG has much to contribute to this. The unique position as the world’s leading integrated gas company and our long experience with gas markets should serve the Republic well, as we focus on creating and realising value at Karachaganak, both in the current project and in the future phase of gas development.
Table of contents
The National Bank of Kazakhstan Continues Reforming Grigory Marchenko
The Coal and Atomic Energy Industry in Kazakhstan: the Current Situation and Future Outlook Vladimir Shkolnik
A Comprehensive Approach is the Strategy for Success Oleg Khimchuk
Kazakhtelecom: the Present and the Future Kanat Nurov
Coca-Cola is a Name of Quality Meltem Metin
The Kazakhstan Contract Agency in Action Nurlybek Imanbaev
The Kazakh Consulate-General Opens in Hong Kong: Another Step towards International Integration Bulat Sarsenbayev
Analysis of State Enviromental Policy in Kazakhstan Compared to EU Jean-Louis Teurlai
