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Bloomberg: Extra costs delay Eni’s $29bn Kazakh oil project

Published: Thursday, 5 October, 2006
 
LONDON/MOSCOW: Eni SpA and partners in the Kashagan oil field in Kazakhstan, the biggest discovery in three decades, risk years of delays because of design changes and extra costs.

The $29bn project will miss its target of pumping oil in 2008 and the development will run over budget, the venture partners and Kazakh officials said.
 
Kazakhstan, which is among the top 10 countries in terms of oil reserves, needs to tap the field to meet its goal of almost tripling production by 2015.

“Delays and technological risks may postpone and correct the output target for two to three years,’’ said Zhakyp Marabaev, a director of the exploration unit of KazMunaiGaz, the state-run Kazakh energy company, at an oil conference in Almaty, Kazakhstan’s financial capital.

Oil companies are having to tackle more complicated and costly projects as older fields are depleted. Royal Dutch Shell Plc last year doubled to more than $20bn its investment plans for an oil and gas project in Russia’s Far East.

BP Plc last month said its Thunder Horse production platform in the Gulf of Mexico won’t start until at least the middle of 2008, more than two years behind schedule.

Companies may spend about $29.3bn between 2006 and 2015 to tap fields in the Kazakh sector of the Caspian Sea. The nation plans to pump as much as 3.6mn bpd in 2015, up from 1.4mn bpd pumped on average in the first nine months of this year, according to a Kazakh oil ministry forecast.

The Kashagan project’s design will have to be changed because existing plans don’t meet safety standards, said Philippe Rochoux, director general of Total Exploration and Production in Kazakhstan. A decision on new designs and the timetable for starting operations will be made by year’s end.

“The project is now progressing in the stage where we are reconsidering some initial project’’ parameters, Umberto Carrara, a managing director at Eni’s Agip KCO, which is operating the venture, told the conference in Almaty.

The Kazakh government had planned for Kashagan to start in 2008. The first oil will be pumped beyond 2009, Kazakh Energy Minister Baktykozha Izmukhambetov said yesterday.

“It could be delayed by several years: 2008 is not possible,’’ Rochoux said. “Costs are going to be higher.’’

Eni, Europe’s fourth-largest oil and gas company, in March said the first phase of developing the field in Kazakhstan would cost between $4bn and $5bn more than forecast due to a weaker US dollar and the higher cost of equipment.

The company in 2004 put the total cost at $29bn over 15 years. Rome-based Eni leads a group of partners, which include ExxonMobil Corp, Shell, Total and KazMunaiGaz in developing Kashagan. – Bloomberg
 

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