Anxieties and Hopes of Caspian Offshore
Developing the vast resources of the Caspian Offshore turned to be more difficult than expected during the period of first commercial discoveries. Over the past decade, there were few 'dry' wells, and a number of offshore projects, deserted due to the leaving of foreign investors. However, the Government and KazMunaiGas are rather optimistic: the Asian players are replacing the Western ones, and geological exploration is bringing now the encouraging results.
According to the Ministry of Energy, the Kazakhstan’s sector of the Caspian Sea (KSCS) hides the largest proven oil reserves. According to the results of geological and geophysical studies, over 400 different structures were identified, including 120 prospective ones, with the forecast resources of 8 billion tons of equivalent fuel, including 4.5 billion tons of oil. This is comparable with the total reserves of all the onshore fields in Kazakhstan. High potential is also proven by the independent experts. For instance, according to the Gaffney, Cline & Associates company, KSCS resources amount to 2.3 billion tons of oil, even excluding the reserves of the North-Caspian project (Kashagan, Aktoty, Kayran and Kalamkas Sea).
The area of the sector can be divided into three zones, based on the geological and other factors, influencing the subsoil development in water area. In the first zone, the subsalt Upper Paleozoic sediments are the major source of the expected prospective resources. The unique oil and gas fields, such as Kashagan, Aktoty and Kayran, were discovered here in 2000-2004, which nowadays are being developed in the framework of the North-Caspian Project. The second zone, including Kalamkas Sea, Auezov and Khazar fields, has the commercially proven producing Middle Jurassic formations. The third zone, including Rakushechnoye Sea and Nursultan (N), has the prospective Mesozoic complex.
In 2003, when the Government Program for development of KSCS to 2015 was adopted in Kazakhstan, it was supposed that only at the Kashagan field will produce 0.5 million tonnes in 2005, 22 million tonnes of oil in 2010, and 60 million tonnes of oil in 2015. At the same time, it was expected that the production in other blocks of the first stage will start by 2009-2010. Within the frameworks of the Program, Kashagan development was started, as well as the geological exploration works in Kurmangazy, Tub-Karagan, Atash, Zhemchuzhina, N, Zhambyl and Zhambay. Moreover, KazMunaiGas started the negotiations with the investors on such prospective sites as Darkhan, Shagala, Issatay, Abay, Zhenis, Bobek, Satpayev, Makhambet and others.
Alas, it did not come true. The regular delays in implementation of Kashagan Project led to the fact that the Program had to be terminated in advance, already in 2010. The "dry" series of prospecting results played its role in taking this decision, named by the experts as “Tub-Karagan syndrome”. According to the drilling results in the central part of Kazakhstan's Caspian offshore, the wells in Kurmangazy, Tub-Karagan and Atash turned to be dry.
The Western investors began leaving the offshore projects of Kazakhstan from spring of 2012. The French oil company Total left board the first, when it officially refused from Zhenis site. Italian oil company Eni returned the Shagala site in the autumn of same year, and the American oil company ConocoPhillips left the block N and North-Caspian Project, which includes the Kashagan field. Norwegian company Statoil refused from the Abay block after 12 month of its development, which didn’t meet the project economic indicators after eight years of negotiations.
Synergy Effect
Of course, one can not to assure that the Kazakhstan’s Epic of Big Caspian Oil is just a story of failures. For example, the North Caspian Operating Company (NCOC) declared commercial discovery in Kalamkas Sea field in February of last year, with the recoverable reserves equal to 67.6 million tonnes and the geological reserves amounted to 284.5 million tonnes. At the same time, as some experts believe, the field has much more serious prospects, since with consideration of the subsalt complex, its total reserves may reach 1 billion tonnes. If all of these forecasts are justified, then the profitability of oil production at Kalamkas Sea may be higher than at Kashagan on the background of smaller content of hydrogen sulfide, and it will significantly improve the economic performances of the North-Caspian Project as a whole.
The first oil production at the Kalamkas Sea field is scheduled for 2022. Company Kashagan BV, the subsidiary of KazMunaiGas is chosen as the Project Operator, which acts as an agent of the NCOC consortium. Meanwhile, Shell and ExxonMobil will provide the consulting for the National Operator. In the first stage, this Project will be bound to Zhemchuzhina Project both technically and technologically, to ensure the mutual profitability. Commercial viability and existence of common shareholders will allow to combine the field development, thusm avoiding the cost duplication. Other projects might be added to a single technological complex in the future.
As to Zhemchuzhina Project, Caspi Meruerty Operating Company B.V. is being its operator, and the PSA partners include Shell (55%), JSC KazMunayTeniz (25%) and Oman Pearls Company Limited (20%). According to results of prospecting drilling, completed during previous years, all four structures - Khazar, Auezov, Tulpar and Naryn, included in this contract territory, have the presence of hydrocarbons. In particular, the State Reserves Commission approved the recoverable oil reserves of Khazar field as 31 million tonnes back in March 2013. Based on the results, obtained during appraisal of Auezov-2 well, the commercial oil inflow were obtained in the volume of 4.6 thousand barrels per day (about 627 t/d) from the upper productive interval and 400 b/d (about 56 t) from the lower one.
Ambiguous Zhambyl
A successful start was experienced by Zhambyl Project, with its 73% owned by KazMunaiGas and 27% - by Korean Consortium KC Kazakh B.V. The partners announced the results of drilling of the first exploration well with depth of 2200 meters in August; it has proved the presence of two promising oil and gas structures in the Middle Jurassic sediments. During the testing, a gushing flow of hydrocarbons was obtained at the rate of equivalent to 60 t/d.
An operating company Zhambyl Petroleum LLP arraned the drilling works. Meanwhile, the brand-new offshore drilling rig Caspian Explorer was used for drilling: it was built under agreement between KMG and the Korean consortium in Kuryk port, using the production facilities of Ersai Caspian Contractors LLP.
The partners have extended the contract term for exploration of Zhambyl for another two year period in April of this year and they started drilling a new exploration well ZT- 1 in Zhetysu structure in June, which is also included in the license area. Its designed depth equals to 2200 m and the expected completion deadline is scheduled for the autumn of this year.
It is planned to provide the general operational calculation of hydrocarbon reserves for the whole structure, based on the results of geological and geophysical works, core laboratory research and formation fluid.
At the same time, nowadays, some experts do not share the increased optimism about successful testing of Zhambyl field. In their opinion, the obtained volume of oil is good for the onshore production, but it is not enough in the context of the North-Western part of the CSCS (where costs per ton of oil is 2.5-3 times higher) for a cost-effective commercial development. Despite the fact that the Zhambyl field is an above-salt structure, i.e. it shall be more affordable and cheap for the development. Moreover, the obtained debit was twice lower than expected according to the preliminary forecast. Based on this assumption, the recoverable reserves equal to almost 30 million tonnes.
Well, we will expect for the drilling results of the second well in Zhetysu field.
Promising Abay and Satpayev
Another exploration project of the Caspian Sea entered into implementation stage this year- Satpaev field is located in the North-Western part of the CSCS.
Satpayev Operating LLP, its operator, has already started the permit application procedure to start exploratory drilling works, which will continue until 2016. KazMunaiGas, which owns 75% and Indian company ONGC Videsh Oil, having 25% share, are the project shareholders. In case of discovering the commercial oil reserves, the Indian company can rely on the purchase of another 10%, since it is financing the project in full.
The Indians made many efforts to reach this point. Protocol of Intentions, regarding the Satpayev field, was signed by the Government of Kazakhstan and ONGC in 2005. But the final agreement for the project kick-off could be concluded only in 2011, during the visit to Kazakhstan, rendered by Manmohan Singh, India’s Prime Minister. The Indian side paid a bonus in amount of $80 million, while the total investments of ONGC are about $400 million, including the Commercial discovery bonus (of course, it is valid only in case if the Exploration Project will be successful and the forecast reserves will be proved).
According to the Company’s estimates, the recoverable reserves could consist of at least, 250 million tonnes of oil. In this case, the total capital expenditures for the commercial field development could reach $9 billion, taking into account the well and infrastructure construction. The peak production level is expected as 287 thousand b/d for the block, but it is not yet clear how quickly this will happen.
It should be noted that ONGC Videsh, as a subsidiary of the National Company Oil and Natural Gas Corp, is actively buying the oil and gas assets around the world to ensure the energy security for India, which imports 70% of the consumed oil. And in this respect, the CSCS field is a very attractive share for the Company. This Company has been the main rival of CNPC, Chinese company, in struggle for a share of ConocoPhillips in Kashagan field, although the Indians lost last time.
As a compensation, the Government of Kazakhstan invited ONGC Videsh to participate in Abay Project, abandoned by Statoil. It should be noted out that the experts believe that the offshore Abay field is the most promising one after the Kalamkas Sea. According to KMG estimates, its total resources equal to 760 million tonnes of oil, out of which 607 million tonnes will be supplied by Abay structure, 125 million tonnes- by Aliya and 28 million tonnes-by Abay Southern. All this factors add important to the Project as one of the key event in Kazakhstan’s oil industry. Possible annual production volumes can actually reach 4 million tonnes of oil and 0.5 billion m3 of gas.
It seems that "skeletons in the closet" don’t even trouble our Chinese partners. They are not afraid to pay significant amounts for participating in Kashagan development, entering into the Project prior to beginning of its next crisis period, they are also ready to invest in much more risky offshore exploration projects. It is enough to say that the Chinese-Kazakhstani Atyraumunaygaz LLP (subsidiary of Mangystaumunaigas JSC), is already working in Makhambet and Bobek fields at the present time. The forecast hydrocarbon resources of Mahambet field, including nine prospective structures, equal to 222 million tonnes of fuel equivalent. The three structures, related to the Jurassic sediments, are discovered at Bobek-Clavdiya, Eugeniya and Eugeniya North-East areas, with the most probable recoverable oil resources in the volume of 32 million tonnes.
It shall be noted out that the limited interest shown by the Western companies towards the Big Caspian Oil is not the most important issue for Kazakhstan. There are still those trying to access the treasures of our sea. Another issue: do they have enough experience and technologies to ensure returns from the offshore fields, ensuring acceptable industrial and ecological safety indicators.
Alexey Nigay
