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Shell’s giant Kazakhstan oil project in crisis

Royal Dutch Shell and its partners are to ask the Kazakh government for an extension to the 2013 deadline for the first oil from their troubled Kashagan field.

By Richard Orange, Almaty, Kazakhstan

5:40AM BST 01 Jul 2011

Kazakh oil minister Sauat Mynbayev has repeatedly threatened the consortium of oil companies with heavy financial penalties if it misses the 2013 final deadline.

The partners, including Shell, Total, ExxonMobil, Eni and Kazakh state oil company KMG, have repeatedly missed start dates beginning as far back as 2005.

A last-ditch plan to meet the 2013 deadline involved pumping at least 50,000 barrels per day of oil directly onshore, bypassing an unfinished processing plant on an artificial island.

However, at an acrimonious meeting a fortnight ago, the partners rejected this option. The consortium now has no choice but to ask the oil ministry for an extension, according to a source at an oil services company in Atyrau.

“Our people went to a workshop 10 days ago, and were told that the partners had rejected the ‘early oil’ concept because it was not sufficiently worked out, and so they now had a brief to go back and ask for an extension to their 2013 deadline,” he said.

A spokesman for the North Caspian Operating Company (NCOC), which operates the project, said the consortium had not altered its plans to hit the 2013 target. “We are still working towards the target of the end of 2012 and a lot of effort is going into meeting that date,” he said.

When the Caspian field was found in 2000, it was the largest oil discovery in 30 years, with reserves of 9bn to 13bn barrels of oil.

But it has been dogged by technical difficulties, pushing total development costs as high as to $136bn. The delay will inevitably increase friction with Kazakhstan, complicating the group’s struggle to win approval for a second phase of the development.



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