Spring is a Time of Triumph for Oilmen
Spring 2004 was marked by events that will largely define the prospects for growth in the Kazakh oil and gas sector over the next few years…
Things Are Only Smooth on Paper
At the beginning of April the Ministry of Energy and Mineral Resources of Kazakhstan invited bids for investment programmes in a competition to receive mining rights in the hydrocarbon fields located in Western Kazakhstan, Aktobe and Mangistau regions.
It is stressed in a notice by the Energy Ministry that supplying local refineries with 100% of the oil produced during test operation and not less than 20% of the amount produced during commercial operation should be a mandatory condition in all oil operation contracts. In addition, under each contract the owner of a contract area must accept the existing oil and gas wells onto their balance sheet and ensure full utilization of the associated gas.
In addition to this, the Ministry has invited tenders for exploration and production of methane in the Taldykulsky area of the Karaganda coalfield. The names of the winners will be made public in the third quarter of 2004; the main criteria are the start date of exploration, the intensity, the maximum production level economically and technically possible, and the maximum extraction coefficient. The expected payments to the budget (both initial and ongoing), project financing terms and conditions, the investment in the development of production and social infrastructure in the contract area, meeting safety requirements and protecting the subsoil and environment will also play a crucial role in determining the winners.
According to independent experts, the very fact of inviting tenders for land blocks instead of tenders for promising offshore fields is evidence of a change in Astana’s primary plans for large-scale development of the Caspian off Kazakhstan. The government has not yet decided which projects will be implemented on the Caspian shelf, or in which order nor, as a result, which infrastructure facilities they will require.
A statement by Minister of Energy and Mineral Resources Vladimir Shkolnik on 5April at the country’s Parliament indirectly confirmed this assumption. According to the official, the plan for infrastructure development in the Caspian off Kazakhstan will be submitted to the government by the summer 2004. When the plan will be approved remains unclear…
At the same time experts believe that the lack of required infrastructure is not the only problem in the country. The existing legal framework for mining does not fully meet the national economic interests, either.
Therefore, at the beginning of April the Senate considered draft amendments to certain legal acts on mining and oil operations. Officials believe that this law, which will make considerable changes to the Laws On Oil, On Subsoil and Subsoil Use, and On Environmental Protection is being passed because of the necessity to improve state regulation of subsoil use and eliminate a number of legal shortcomings.
In particular, Kazakh parliamentarians believed it essential to add an amendment on “the overriding right of the state to purchase mining rights and/or a share in mining projects” to the draft. The amendment states that “in order to retain and strengthen the resource and energy base of the economy”, all newly and previously signed mining contracts envisage the state’s overriding rights over the other party to the contract, participants in the legal entity holding the mining rights and other persons to purchase alienable mining rights (or part of these) and/or a share in a legal entity with mining rights under conditions no less favourable than those proposed by other buyers. Therefore this principle will be binding for all existing and future mining contracts.
The draft amendment provides for KazMunaiGaz to hold the exclusive right to represent the state interests in contracts with contractors implementing oil and gas operations through an obligatory share holding of not less than 50% in projects.
In addition, the draft contains a law requiring subsoil users to provide jobs for a certain percentage of Kazakh specialists and to purchase certain amounts of local goods, work and services, provided that they meet international standards.
New Players in the Oil Field
Since the beginning of April, a new oil producing company-KazMunaiGaz Exploration and Production-has been operating in Kazakhstan. The company was created on the basis of the assets of Uzenmunaigaz and Embamunaigaz. According to Zhakyp Marabayev, the Director General of the new company, this step was called for by the “need to cut oil and gas exploration and production costs and the resulting augmentation and consolidation of assets and spending to even out fluctuations in profits to some degree”.
It is expected that KazMunaiGaz Exploration and Production will become the second largest mining company in Kazakhstan after Tengizchevroil in terms of recoverable oil reserves (some 280m tonnes in 44 fields) and oil output (more than 8m tonnes per year). The company’s plans for 2004 include the production of 8.3m tonnes of oil, with prospects for growth to 9m tonnes in 2005.
To replenish and increase the existing resource base, the newly established company plans to carry out geological exploration in a number of promising blocks in the Atyrau and Mangistau regions.
The Atash joint venture is yet another participant in Kazakhstan’s oil industry. It was set up on a parity basis by the Kazakhstan-based KazMunaiTeniz company (a daughter company of KazMunaiGaz) and Russia’s LUKOIL Overseas Holding Ltd. Its focus will be on the Caspian off Kazakhstan. It is expected that the company will act as an operator in the initial stage of developing the Atashsky and Tyub-Karagan offshore fields.
The preliminary cost of geological exploration and preparation for exploratory drilling is $150m. An area of 655 sq km in Tyub-Karagan has been subjected to a detailed 2D seismic survey. As for the Atashsky field, 1,057 sq km will be surveyed there by the end of 2004 (including 503 sq km with a section density of 2x2 or 3x3 in the Atash, Kazakhstan and Maral structures). The exploration network will be tested in shallow (50 sq km) and deepwater zones (1,007 sq km).
More Oil…
Thanks to favourably high energy prices, Kazakhstan increased its production and export of energy considerably in January-April 2004.
The oil and condensate output over the first four months of 2004 was 18.49m tonnes, which is 12% higher than similar indices for the same period in 2003. 2.74m tonnes were accounted for by the daughter companies of KazMunaiGaz: UzenMunaiGaz (1.86m tonnes and over 8,940 tonnes of condensate) and EmbaMunaiGaz (880,000 tonnes of oil). Some 7.68m tonnes of oil were produced by companies in which KazMunaiGaz has a shareholding, which is 11.1% higher than for January-April 2003. The bulk of the output was provided by Tengizchevroil (4.64m tonnes) and Karachaganak Petroleum Operating (2.34m tonnes).
The remaining oil producing companies produced 8.65m tonnes of oil over this period (114% of the index for 2003). MangistauMunaiGaz (1.68m tonnes of oil) and CNPC-Aktobemunaigaz (1.71m tonnes) contributed the largest amounts among those.
… and Gas
Gas production is also increasing in Kazakhstan. Over the first four months of 2004 it came to over 6.1bn cu m, which is 41.5% higher than in 2003.
The lion’s share of this amount (around 4.21bn cu m) was provided by enterprises in which KazMunaiGaz has a shareholding. Some 1.643bn cu m were produced by Tengizchevroil (an increase of 4.1%), over 2.642bn cu m Karachaganak Petroleum Operating (30%), 62.47m cu m by Kazakhoil Aktobe and 21.763m cu m by the Tenge joint venture.
The indices of KazMunaiGaz’s daughter companies decreased somewhat compared to the corresponding period last year. Over the first four months of 2004 they produced 395.438m cu m of gas, of which 364.48m cu m were accounted for by Uzenmunaigaz and 30.958m cu m by Embamunaigaz.
At the same time, production at other Kazakh gas producing companies increased by 3.7 times to 1,531.13m cu m of gas during the period under consideration. Mangistaumunaigaz produced 65.51m cu m (112.2% of the indicator of 2003) and CNPC-Aktobemunaigaz 653.871m cu m (2.5 times higher than last year).
Blue Fuel for Kyzylorda
Whilst increasing gas production, Kazakhstan is not neglecting the expansion of the internal gas pipeline network. On 29 April 2004 the national gas transport operator KazTransGaz began construction of a 124-km Akshabulak-Kyzylorda pipeline. The objective of this project-labelled as ‘the priority of the year’ by President Nazarbayev-is to provide delivery of natural and liquefied gas from the fields of the Turgai oil and gas basin to consumers in Kyzylorda. The $24.5-m venture will be funded from the national budget. When this unique construction project is completed on 1 October 2004, Kyzylorda residents will receive up to 350m cu m of blue fuel per year (up to 250m cu m per year in the initial phase).
From Atasu to Alashankou
The signing of new Kazakh-Chinese agreements was the key event in May. On 17 May the head of KazMunaiGaz Uzakbai Karabalin and Director General of CNPC Zhang Xin signed an agreement on the basic principles for constructing an Atasu-Alashankou oil pipeline. In addition, Kazakh Minister of Energy and Mineral Resources Vladimir Shkolnik and Chairman of the Chinese State Development and Reform Commission Ma Kai signed a framework intergovernmental agreement on developing co-operation in the field of oil and gas.
Commenting on the importance of these documents, Mr. Karabalin stressed that developing the Chinese direction for export of Kazakh oil ensures great prospects and reliability for all oil projects in Kazakhstan.
Under the agreements signed, the construction of one of the longest sections of the ‘Great Chinese Pipeline’ will begin as early as August 2004. For this purpose, Kazakhstan and China will establish a joint venture on a parity basis. Each party will transfer $50m to its authorized capital. The remaining funds will be encouraged under Chinese guarantees. Kazakhstan will manage the export project.
The construction will be completed on 16 December 2005; this date was mentioned by President Nazarbayev at a press conference focusing on his recent visit to China.
If these plans come true, in a year and half Kazakhstan will be able to access one of the fastest growing oil markets, while the pipeline will act as an energy link linking the Caspian with the Celestial Empire.
Table of contents
The Logic of Corporate Solutions Ilya Lapaev
Competitive Transit Capacity for Eurasia Kazhmurat Nagmanov
Navigators of Our Skies Sergei Kulnazarov
The Fifth Majilis Session: Deputies Summarize the Results Ivan Chirkalin
Traceca, a Route to the Future Thomas Lamnidis
Ispat Karmet: The Reincarnation of A Giant Nawal Kishore Choudhary
We are United - and Not Only by Oil! Morteza Saffari Natamzi
Seven Years of Honest Co-Operation Jiang Chi
Pipelines in Kazakhstan: the Legal Issues Abai Shaikenov, Anthony Cioni
Well-drilling by Professionals! Serik Kudaikulov
Creating Bankable Regional Electric Companies James M. Hogan
Power Telecommunications: the Technology of the Future Today Rodion Fazleyev
ISO 9001:2000: A New Management Approach Ramilya Mustafina
