Statoil Abandons Kazakh Caspian Oil Project After 7 Years

From Bloomberg

Statoil ASA is giving up a Kazakh offshore block after Norway’s biggest energy producer spent about seven years negotiating to start exploration, the latest international defection from a Caspian Sea project.

Statoil, state-owned KazMunaiGaz National Co.’s strategic partner in the Abai project, sent notice of its decision last month, the Astana, Kazakhstan-based energy producer said in an e-mailed response to questions. KazMunaiGaz said in 2006 that Statoil planned to join Abai, with an estimated 387 million tons of resources (2.8 billion barrels), the following year.

Delays and cost overruns have dogged Kazakhstan’s efforts to expand offshore production of oil and gas, the government’s main source of revenue. ConocoPhillips is exiting the biggest new development, the Kashagan project, where costs have swelled to $46 billion for the first phase with first output due by June, about eight years after an initial target.

“Kazakhstan has huge potential in the Caspian Sea but the state should ease conditions for oil producers to attract them” as competition among resource holding nations increases, Ildar Davletshin, an analyst at Renaissance Capital in Moscow, said by phone. “The exit of foreign partners from offshore projects may slow down their development as KazMunaiGaz hasn’t enough expertise” to go it alone.

Kashagan, Tengiz

Kazakhstan, the second-largest oil producer in the former Soviet Union, needs Kashagan, Chevron Corp.’s Tengiz and the Eni SpA and BG Group Plc-led Karachaganak deposit to keep output from dropping to less than 80 million metric tons of oil a year after 2016, Oil and Gas Minister Sauat Mynbayev said in October, according to his website. Oil production contributed 16 percent of gross domestic product and about half of tax revenue in 2011, JSC Halyk Finance estimated in December.

Kazakhstan’s oil output forecast is “quite cautious” and excludes 65 exploration contracts, Mynbayev said. “Some of the structures will turn out to be dry.”

Statoil opened an office in Astana in 2004 to seek business opportunities in the North Caspian region in cooperation with KazMunaiGaz, according to the Stavanger, Norway-based oil producer’s website. Abai is 65 kilometers (40 miles) from shore.

Global Priorities

“As part of a global prioritisation process and the overall commercial and technical evaluations related to the Abai project, we have decided not to pursue negotiations,” Baard Glad Pedersen, a spokesman for Statoil, said by e-mail. The company signed a heads of agreement on the Abai block in March 2011, he said.

KazMunaiGaz is buying stakes in Caspian projects, even as it loses partners, raising questions about a five-year, 557 billion-tenge ($3.7 billion) exploration plan announced in December 2011. The state company had planned to drill 435 wells to evaluate offshore fields including the N, Zhambyl and Satpayev blocks, and start exploration at Abai, as well as the Isatai and Shagala deposits with Eni.

Since then, ConocoPhillips pulled out of N block, selling its 24.5 percent to the Kazakh company for $32 million in January, and is looking to sell its 8.4 percent stake in Kashagan to India’s Oil & Natural Gas Corp. for $5 billion.

Kazakhstan is considering whether to use the state’s right of first refusal to buy ConocoPhillips’s Kashagan stake or let ONGC enter the project. The government has until March 26 to decide, the Oil and Gas Ministry said by e-mail.

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