PLANS ADVANCE FOR MASSIVE KAZAKH DEVELOPMENT

Regional Setting of Karachaganak Field (72218 bytes)

A multinational combine has agreed to the main points in a huge program designed to reverse a production slide in Kazakhstan's giant Karachaganak gas/condensate field.

The U.K.'s British Gas plc, Italy's Agip SpA, Russia's Gazprom, and state owned Kazakhgas signed a Karachaganak production sharing principles agreement early this month. It is a step to ensure that further development of Karachaganak will take place under a final production sharing agreement.

The interim agreement, signed Mar. 2 in Almaty, will run for 24 years and allow limited operations in the field under a 40 year production license. Outlays during the interim od will amount to as much as $320 million to increase production and improve the "technical, safety, and ecological condition" of the field. The accord sets out interests in the Karachaganak contractor group as British Gas 42.5%, Agip 42.5%, and Gazprom 15%.

While the interim accord is in place, the contractor group and Kazakhstan will work out long term arrangements on processing and transportation of Karachaganak production and prepare a final production sharing agreement that will call for full scale develop t.

Agip said estimates based on signing of a final agreement place spending at $8 billion. A development program includes workovers, drilling of production and gas injection wells, and installation of gas injection compressors and oil and gas gathering lines.

British Gas and Agip first obtained exclusive negotiating rights for a $6 billion, 10 year program of further Karachaganak development in summer 1992 (OGJ, July 13,1992, p. 24).

Separately, British Gas agreed to buy Gulf Canada Resources Ltd.'s 25% interest in the KomiArcticOil joint venture. The agreement, subject to Russian approval, will give British Gas a 50% interest in a venture that is conducting field development in the Komi Republic of northern Russia. Gulf said Russia is no longer part of its strategic focus.

RESERVES PRODUCTION

Karachaganak, in the Pre-Caspian basin, holds present estimated reserves of 16 tcf of gas and 2.4 billion bbl of condensate, scheduled to be recovered during 40 years. British Gas said 20 tcf of gas and 3 billion bbl of condensate could ultimately be recovered.

Production began in 1984 under operatorship of Karachaganakgazprom, a unit of Gazprom. The operator's role shifted to Kazakhgas when Kazakhstan became independent in 1980.

Production peaked at 4.5 billion cu m of gas and 4 million metric tons of liquids in 1991. Lack of investment since then caused a decline to about I billion cu m/year of gas and 1 million metric tons/year of liquids.

Production forecast under the interim agreement is an increase to 4 billion cu m /year of gas and 4-4.5 million metric tons/year of condensate. Agip places long range production at about 25 billion cu m/year of gas and 13 million metric tons/year of condensate.

After initial separation and stabilization, gas and liquids are sent 150 km northeast to Orenburg field for processing. Gas then enters the Russian gas grid at Orenburg, while liquids are sent on to Russia's Ufa and Salavat refineries.

The new agreement confirms the role of Gazprom in the Karachaganak project after months of speculation. Agip said Gazprom's interest will help assure transportation of products to Europe via Russia's pipeline system.

"Meanwhile, long term transportation and export arrangements will have to be finalized to justify entry into the next development phase," British Gas said.

"Since mid-1992 it has become evident that involvement of Gazprom in the project would greatly assist in achieving full development of Karachaganak field."

Industrial Bank of Japan's London branch, along with Mercator Corp. and the Shearman & Sterling law firm, advised Kazakhstan on the deal.

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