The Largest Field

On the basis of the PSA, the main agreement between the Consortium Offshore Kazakhstan International Operating Company (OKIOC) and the Government of Kazakhstan was signed in November 1997. Exploration of hydrocarbons on NCS PSA began in 1998 within 5,600 square kilometers. Composed of a variety of oil companies including Shell, ExxonMobil, Total, and Kazakh state-run KazMunaiGas, the Consortium is licensed to conduct oil exploration in the Caspian Sea and extract oil directly from the open fields. With four major oil and gas facilities at Kashagan, Kalamkas-sea, Aktoty, and Kayran, it is Kashagan that is home to potential reserves estimated around 70 billion barrels. At the same time, recoverable reserves are estimated at 7-13 billion barrels of crude oil.

In 2001, Agip KCO—an Italian subsidiary of Eni—was established to act as operator of this so-called “North Caspian project.” Moreover, in 2003, Agip KCO accounted an increase in the cost of the project to $10 billion as well as an inevitable delay in oil production to 2006. However, in the same year, it was announced that oil production would begin in 2007. Due to the environmentally sensitive nature of the Caspian Sea, difficult climatic conditions and technical complexities, Agip KCO announced that the Kashagan field would be carried out in stages.

Due to the Caspian Sea’s reef structures, it has been impossible to use traditional drilling and production techniques, such as concrete structures or self-elevating platforms installed on the seabed. In fact, all marine structures of the field providing oil and gas reinjection or gas drilling have been installed on artificial islands. This was done to protect Kashagan from the sea’s harsh temperatures during winter.

Furthermore, oil and gas supply to the shore will be provided through two types of islands, drilling islands and hub islands. Hub islands will supply processing facilities to separate recovered liquid (oil and water) from the raw gas in addition to gas injections and power generation systems through pipes. Known as the Experimental Program, the first phase entails a re-injection of half of the gas produced into the reservoir.

The operator of the North Caspian project is currently implementing a construction plan for field pipelines to transport crude oil and sour gas from the sea to UKPNiG “Bolashak.” Additionally, a program has been implemented to commission and prepare production facilities for the re-launch. The completion of these works as well as the launch of oil and gas production are scheduled at the end of 2016. In this regard, an authorized governmental body facilitates the work of the North Caspian Operating Company to finalize all necessary permits and approvals in time. After finishing the construction of pipelines and resuming hydrocarbons extraction, contractors will start planning the next development stages of Kashagan.

Encouraged by the commissioning authority, a tripartite MoU was further signed between oil companies and an association of legal entities in 2015. Under the memorandum, the North Caspian Operating Company is currently developing a list of popular products and carrying out preparatory work for the early tender.

Two weeks after production started, mining in Kashagan came to an abrupt halt in September 2013 because of a gas leak. Almost immediately after the resumption of production in October 2013, yet another leak was discovered. An analysis conducted over several months revealed the presence of numerous micro-cracks in the pipeline that had emerged as a result of exposure to metal associated gas with high sulfur content. The operating company of the project, North Caspian Operating Co (NCOC), also announced that it would replace all gas and oil pipelines in the field within a circumference of nearly 200 kilometers. This significantly delayed oil and gas production and increased expenses.

The Ministry of Energy has repeatedly stated that production at Kashagan would resume towards the end of 2016. Moreover, it is expected that the Kashagan field will become a major source of profit for Kazakhstan. The uniqueness of the Kashagan field make it exceptionally versatile. In fact, Kashagan-based oil production constitutes Kazakhstan’s entry-ticket to the top five oil-exporting countries. Finally, the field’s high-tech facilities are unprecedented, as such oil-extracting technologies have been implemented for the first time in Kazakhstan.