Here is a press release , issued by BG , concerning Karachaganak field:
BG International, joint operator of the five billion barrels of oil equivalent (boe) Karachaganak gas and condensate field, Kazakhstan, announced the results of a comprehensive review of the current phase (Phase II) of the field's development programme. This announcement indicates a change in the expenditure pattern and phasing, with increased infrastructure and logistical costs, and decreased development drilling costs.
Background
BG has a 32.5 percent interest in the Karachaganak field and in November 1997, together with the other Joint Venture partners signed a 40-year production sharing agreement with the Kazakh government for the development of the field.
Phase II covers sales up to nine million tones per annum (mtpa) of condensate and six billion cubic meters of gas per annum (bcmpa), and the export of liquids to world markets via the Caspian Pipeline Consortium (CPC) pipeline. The CPC pipeline that will provide access to the Black Sea for export of Karachaganak liquids has been approved by the Kazakh and Russian authorities and construction is underway. Other key consents for Karachaganak, including the field development plan and access arrangements to the CPC have recently been secured.
Phase II Status and Results of Review
Phase II has now entered the major construction phase which will result in extensive site activity between now and the second half of 2003. Detailed engineering work is now essentially complete, with all main procurement and construction contracts let or bid and the majority of the long-lead materials ordered. The Joint Venture is now at an advanced stage of the award of the main contracts covering the drilling and construction of field facilities.
The review of Phase II carried out by the Joint Venture has benefited from the information gathered during the last two years of field operation, including the experience gained from in-field project execution. The review indicates that the net cost to BG of this phase will increase to US$ 1.18 billion from the initial 1997 estimate of US$ 687 million (real terms, January 1 2000) This expenditure will be phased over six years. The revised figures result from a better understanding of the resourcing and logistical scope and complexity of the project.
There is also a substantial decrease in post-2003 drilling costs resulting from improved reservoir performance observed over the last two years. The total capital cost of the development is therefore substantially unchanged.
In addition, the target for first exports to the CPC pipeline is now in the second half of 2003, compared with the previous target of early 2002. The change in schedule has been caused by a combination of the increases in scope and by significant delays in key approvals for the field development plan, and for access arrangements to the CPC pipeline.
The cost for development of the field facilities and pipelines has been scrutinized and endorsed by Parsons, the independent engineering consultants. Both the cost and schedule have been further verified by international oil and gas consultants, Arthur D. Little.
The Kazakh authorities have been notified of the findings of the review. The changes to the costs and schedule are subject to approval by the partner companies of the Joint Venture, and by the Kazakh authorities.
Karachaganak Represents a Low-cost World-class Asset
Since signing the production sharing agreement in 1997, production has been increased from 90,000 boe/day to 150,000 boe/day, a much broader base of creditworthy customers has been established and operating costs have been halved. These factors, together with much improved realized liquids prices, are today delivering strong returns for Karachaganak.
In addition, BG now estimates that improved reservoir performance will lead to a 15 per cent increase in BG equity reserves from the Phase II development.
The revised cost figures yield to BG a full cycle cost for reserves acquisition, delineation, appraisal, development and production of around US$3.50/boe, compared to an industry average of around US$8/boe and BG's stated 2003 target of US$5.60/ boe for its whole portfolio.
A subsequent Phase III of the development would take liquids production to 12 mtpa and deliver 16 bcmpa of sales gas. This phase is subject to gas market development with implementation anticipated after 2003.
Frank Chapman, President, BG International said: "Karachaganak represents a world class project for BG International, already delivering strong earnings. We have made considerable progress over the last two years in increasing production and profitability, and in understanding the resourcing and logistical challenges unique to the project's Central Asia setting.
"The plans announced today are robust, built on completed engineering, contract tenders and local working knowledge, and will deliver very low unit development and operating costs as well as contributing significantly to BG's earnings.
"BG remains committed to Karachaganak, which is a key constituent of Kazakhstan's rapidly growing and potentially huge oil and gas industry."
Notes to Editors
Karachaganak has estimated gross field reserves of five billion boe - 16 trillion cubic feet of gas and 2.4 billion barrels of oil and condensate.
BG International is the joint operator, under the 1997 production sharing agreement, with Agip of Italy, which also holds a 32.5 percent interest. Texaco of the United States has a 20 percent shareholding, and Lukoil of Russia, 15 percent. Texaco acquired its shareholding from BG and Agip in August 1997. Joint operations are carried out by an operating company in which the Joint Venture partners are shareholders.
BG and Agip secured exclusive rights to negotiate for the further development of Karachaganak in 1992, and in 1995 signed a production sharing principles agreement with GasProm, KazakhGas and the Republic of Kazakhstan. Lukoil replaced GasProm in the Joint Venture in November 1997.
BG's other interests in Kazakhstan include a 14.29 per cent shareholding in the consortium currently exploring in the Caspian Sea. The consortium announced a discovery at its Kashagan prospect on Monday, July 24. BG is also a two per cent shareholder in the CPC, which is building a pipeline system to transport oil from western Kazakhstan to the Black Sea at Novorossiysk.
Source: BG
Date: 28 July 2000
© 2000 Mena Report (www.menareport.com)
