Kazakhstan Holds Talks With Exxon About Kashagan Oil Field Expansion

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(Bloomberg) — Kazakhstan is in talks with Exxon Mobil Corp. about tapping the undeveloped part of the giant Kashagan oil field, said people familiar the matter.

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The discussions between Exxon and senior officials from the Central Asian country have included details on how the potential expansion of the giant field could happen, the people said, asking not to be named as the discussions are private. 

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There is no guarantee that the talks will yield a deal, though Kazakhstan is eager to push ahead with further offshore oil developments to expand production, they said. The talks are linked to other issues, including discussions around the extension of the license for the Tengiz field in which Exxon is also a partner, they said. 

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When the Kashagan deposit was found in 2000 it was the largest oil discovery in decades. Eni, the field’s operator at the time, expected it to eventually pump as much as 1.5 million barrels a day, but after numerous delays and cost overruns during the development process, current output is only about 450,000 barrels a day. 

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In June, Kazakhstan’s state-owned oil producer, KazMunayGas National Co., said it was focusing its efforts on getting its partners in Kashagan to develop more of the field’s resources. The existing Kashagan development, also known as the North Caspian Project, taps only a portion of the area’s full potential.

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The field’s operating company currently expects to boost oil production to about 500,000 barrels a day by 2026 and as much as 700,000 barrels a day by 2031, once additional gas-processing plants can be built, according to KazMunayGas’s website.

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Exxon is one of the major partners in Kashagan alongside Eni Spa, Shell Plc, Total Energies and KazMunayGas. The Texas-based company also has a minority stake in the country’s largest oil field Tengiz, which is run by Chevron Corp.

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The talks about further development at Kashagan are intertwined with issues related to other projects in the country, the people said. That includes discussions around the extension of the license for Tengiz, which expires in 2033. The Kazakh state wants to boost its stake in the venture as a condition for extending the field’s contract. 

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The Kashagan partners are also involved in arbitration proceedings in Sweden and Switzerland, in which Kazakhstan’s government is seeking as much as $160 billion in damages, mostly related to lost revenue during production delays.

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If the existing international partners in Kashagan aren’t willing to invest further in the field, KazMunayGas is ready to move things forward with different companies, Chief Executive Officer Askhat Khassenov said in June. So far, only eastern Kashagan has been producing oil, leaving its western deposits and other fields in the area untouched.

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Total oil reserves are estimated at 4.5 billion tons, with the field spanning an area of more than 3,000 square kilometers (1,200 square miles) in the northern part of the Caspian Sea, according to a statement on the website of TOO PSA, the Kazakh Energy Ministry’s representative in production sharing agreements. Current production facilities will recover between 1 billion and 2 billion tons of these resources, with a production sharing agreement running until 2041, field operator NCOC said on its website.

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Development of the field is challenging because of high reservoir pressure and concentrations of toxic hydrogen sulphide gas in the oil produced. The geographical location of reservoir, in shallow waters of the Caspian Sea that freeze during winter, is also difficult. 

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A spokesperson for Exxon declined to comment. KazMunayGas declined to comment. Kazakhstan’s Energy Ministry didn’t respond to requests for comment. 

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—With assistance from Kevin Crowley.

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