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Kazakhs Consider Bid to Boost Kashagan Oil Cost to $46 Billion

By Nariman Gizitdinov – Jan 11, 2012 6:00 PM GMT

The Kazakh government is considering a request from Exxon Mobil Corp., Royal Dutch Shell Plc (RDSA) and other partners to raise the budget for the first phase of the Kashagan oil project by 20 percent to $46 billion, according to a person with knowledge of the matter.

The international oil companies, which include Eni SpA (ENI) and Total SA (FP), will bear the extra cost themselves, the person said, declining to be identified as the information isn’t public. Kazakhstan’s state energy company, which also has a stake, will reimburse them with barrels of oil for its share once output starts, he said.

Kashagan, once touted as the world’s biggest discovery in four decades, has been plagued by cost overruns and delays over the past decade. An early estimate of $24 billion for the first phase was revised up to $38.6 billion. The venture underestimated the cost of building artificial islands for equipment and to house workers in a region that’s frozen almost half the year, while construction expenses also surged.

Shell, Exxon, Eni and Total each hold a 16.8 percent stake in the field, as does state-owned KazMunaiGaz National Co., according to the website of the North Caspian Operating Co., or NCOC, which manages the project. ConocoPhillips holds 8.4 percent and Japan’s Inpex Corp. (1605) has 7.56 percent.

The costs and schedule of the field’s development are “currently being considered” with the government after a review was carried out, NCOC said in an e-mailed statement.

KazMunaiGaz referred questions to Kazakhstan’s (OLPDKAZA) Oil and Gas Ministry, which didn’t respond to an e-mailed request for comment. Shell declined to comment, as did Eni and Total. Charlie Engelmann, an Exxon spokesman based in Irving, Texas, directed a request for comments to the project’s joint operator.

The Caspian Sea field will produce 370,000 to 450,000 barrels of oil a day in the first phase, which may double in the second phase in 2018 or 2019, Deputy Oil Minister Lyazzat Kiinov said last month.

Production is slated to begin in June 2013 “at the latest,” Deputy Oil Minister Lyazzat Kiinov said last month.

To contact the reporter on this story: Nariman Gizitdinov in Almaty at [email protected]

To contact the editor responsible for this story: Stephen Voss at [email protected]

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