KAZAKHSTAN - Sector Shake-Up.

The restructuring of the sector came after presidential decrees in early March 1997 were to slash the government by 50%, dissolve seven ministries including that of oil, set up four new presidential commissions and create KazakhOil. They were the biggest political events in 1997.

The shake-up reflected a power struggle between then premier Akezhan Kashegeldin, the advocate of privatisations and transparent evaluation of foreign bids, and a frustrated oil lobby headed by Balgimbayev which was strongly opposed to the way local oil producing companies and refineries were being privatised (see Part 2). Kashegeldin lost the game as he was ousted in October. The process of privatising oil assets was reversed.

The changes represented a turning point in Kazakhstan's economic policy. President Nazarbayev re-centralised decision making. His decrees gave extra powers to the SIC and created such presidential bodies as the Strategic Resources Committee (which replaced the Agency for Control of Strategic Resources with its liberal chairman Galymzhan Zhakiyanov ousted) and the Strategic Planning Committee. Oraz Jandosov, a young chairman of the National Bank, was made first deputy premier.

KazakhOil was to revoke some of the licencing agreements and upstream deals. That was to be part of its new look at the industry and its future structure.

Active in E&P, KazakhOil in November 1997 signed a "strategic alliance" deal with Texaco. The US major said subsequently the deal will expand "Texaco's beachhead in an important energy region". The two companies agreed to jointly hold selected blocks onshore and offshore, with Texaco to be the operator. They were also to have E&P ventures outside Kazakhstan. Texaco holds 20% in a consortium developing the Karachaganak field in the north (see Part 2), and has a 65% stake in the North Buzachi field (see following pages).

In early 1998, oil reserves estimated at more than 500m tons were discovered near the northern town of Pavlodar. They were found by geologists searching for pure water for the production of vodka. The reserves were taken over by KazakhOil.

KazakhOil and its counterpart in Uzbekistan then prepared a joint international tender for exploration and development in a shared part of the Aral Sea. According to the Kazakh authorities, the area may contain 20 large fields, to be exploited jointly by the two states. On Sept. 23, 1996, MITI-owned Japan National Oil Corp. and the Kazakh geology ministry signed a deal for the NW Onshore and Tereskem Blocks near the Aral Sea, where JNOC was to spend $50.5m over a five-year period.

The main onshore E&P deals, other than those now producing oil and gas (see Part 2), include the following fields which are to be developed:

Kozhasai and Alibekmola structures in western Kazakhstan, with combined recoverable oil reserves of 330m barrels, are to begin operations by 2008. Under an agreement signed in June 2000, a 50-50 partnership of Nelson Resource of Canada (till recently known as Nelson Gold, listed in Toronto) and KazakhOil is to explore the fields and develop them with investment to reach almost $800m.

Central Asian Industrial Investment, registered in the Dutch Antilles, has bought 70% into Nelson Gold and renamed it.

Chagyrly-Shomyshty gas field, in Block Al-1551 in the North Ustyurt Basin of the remote Mangyshlak area, was awarded in late February 1999 to American Int'l Petroleum Corp. (AIPC). The field, found during the Soviet era, is estimated to contain recoverable reserves of 2.6 bn barrels of oil equivalent including 30 BCM of sweet gas.

AIPC, which got a 100% interest in this, pledged to invest $100m in the drilling of two appraisal wells into an Eocene gas formation and development of the field. Gas production is to average 200 MCF/day and may begin in 2001.

In late 1999 Tyumen Oil Co. agreed to farm into this block, fund half the costs and get a 50% stake in AIPC's 30-year PSA. Before AIPC took the block wells in the field during the Soviet era had tested 2-5.5 MCF/day of gas.

AIPC has another venture in the North Ustyurt Basin, Block 953, where in January 1999 found gas and oil with its first wildcat Altai at a depth of almost 3,000 metres. Its deal, signed in October 1998, included six delineation wells drilled in the block's Chikuduk structure during the Soviet era. The US company was also aiming to prove large oil reserves in lower Jurassic formations.

After the Altai find, AIPC revised the block's reserve estimate from about 1.1 TCF to 2.15 TCF of gas and 1.98 bn barrels of oil. This stemmed from evaluations carried out by consultant Huddleston & Co., using 907 km of new 2D seismic and a sizeable amount of older 2D seismic that has been reprocessed.

The six Soviet wells suggested four or five Eocene pays each of 2-8 metre thickness, spread over a 700 metre section at around 2,100 metres.

Extensive onshore exploration efforts by foreign companies were begun in late 1992 by Elf Aquitaine (now part of TotalFinaElf). It was followed by Chevron in late 1993 in the Tengiz field, which is now the biggest oil producer in Kazakhstan (see Part 2).

Elf was among the first Western companies to be involved in Kazakhstan. It collected seismic data in the Volga and Temir fields, in the western region of Aktyubinsk. Its work began in July 1992 under a PSA. But talks with the government dragged on, as in the case of other E&P deals involving foreign firms, and Elf withdrew in February 1997 after having encountered results of minor importance. Later the Temir block was acquired by Veba Oel of Germany. In October 1997, Shell bought 60% into this PSA and became the operator, with Veba retaining 40%. Shell was committed to drill two exploration wells and two appraisal wells.

Temir Block B was given in October 1997 to the Turkish state oil firm TPAO under a $750m PSA. This is in the Aktyubinsk region near the Caspian Sea and close to the large oilfield of Zhanazhol, with the area said to have 330m barrels of oil. Amoco (now part of BP Amoco) joined TPAO in early 1998 with 50%. The partners were to pay the government a $3m signature bonus and another $2m towards the cost of building the new Kazakh capital of Astana (see OMT).

TPAO has six other blocks in Kazakhstan. It holds 49% in Kazakturkmunay Joint Petroleum Corp. Its partners there are three KazakhOil units, the former Kazakh geology ministry's Kazzarubejgeologia (26%) and Munaygaz (25%). Kazakturkmunay, set up under PSA signed on Jan. 9, 1993 and in operation since 1994, has six onshore concessions in the Pre-Caspian Basin (which includes Tengiz and Karachaganak) in the Uralsk, Aktau, Atyrau and Aktyubinsk regions in the west.

In the other five blocks, Kazakturkmunay is producing about 1,200 b/d of oil from the following fields which it has developed: Yelemez in Aktau, on stream since March 1995, producing 28 deg. API oil from the Nisanov-98 and Nisanov-79 wells, and the D-Saztube-2 well which began production in Dec. 1996, with the oil taken by trucks to Chevron's Tenghiz production/export system, but Kazakturkmunay is building its own pipeline to the country's Russian export system which eventually will link up with the CPC pipeline to Novorossiysk on the Black Sea; Laktibay in Aktyubinsk, on stream since Aug. 1, 1995, producing 40 deg. API oil marketed on the well site; Toberal in Atyrau region, with two wells on stream since early 1996. Over 10 smaller fields, with some producing, include Bekbolat and Tobearal.

Mobil (now part of ExxonMobil) has been operator of the Tulpar field, which is to be re-explored and is near the Karachaganak field, in a block of 17,759 sq km. The field is in the Pre-Caspian layer and Mobil began drilling the first well in early 1998. But already since mid-1997 the field has proved a disappointment and the area was initially believed to contain reserves comparable with those of Karachaganak. Mobil, whose PSA was signed in 1995, has led a consortium for this with a 25% stake. The group includes Shell (12.5%), a Japex-Sumitomo partnership (12.5%) and KazakhOil (50%). Shell and the Japanese partners farmed into Mobil's PSA in August 1996.

Union Texas holds 37.5% in and operates two blocks covering 16,000 sq km in the Atyrau region. It acquired the stake in early May 1997 from a partnership of Partex and state-owned Oman Oil Co. (OOC). The JV, in which the 50% partner is KazakhOil, was to spend $20m in exploration over a three-year period. Exploration was to include two horizontal wells to test the Dunye field in 1998. Union Texas also acquired from KazakhOil preferential rights to two offshore blocks in the Kazakh sector of the northern Caspian.

Repsol of Spain and Enterprise Oil of the UK in July 1997 signed a PSA with KazakhOil to explore and develop the Baiganinsk block. Repsol is the operator with a 30% equity and Enterprise holds 20%. KazakhOil holds the remaining 50%. Repsol began initial exploration work in September 1997.

Repsol and Enterprise were to invest $25m over a period of six years. Investment in field development and related facilities could reach $1 bn.

Nimir Petroleum, a private Saudi company controlled by the Bin Mahfouz family, in June 1997 signed a PSA for the North Buzachi field in Western Kazakhstan, north of the Caspian port of Aktau said to contain 1-1.5 bn barrels of heavy oil. It held a 100% interest in the field.

Nimir was to drill three wells and start test production by end-1997. Development options were to be assessed during a three-year pilot programme, with Nimir likely to use steam injection or horizontal drilling. The maximum production target was 80,000 b/d.

In September 1998 Texaco acquired a 65% stake and the operatorship role in this venture, with Nimir retaining 35%. The US major was to carry out a study to assess the field's commercial viability. The aim was for production to begin within two to four years. The President of Texaco International Production, Clarence Cazalot, then said: "North Buzachi is well situated for existing and planned export pipeline systems and positions Texaco in a region with strong potential for growth". Texaco has a 20% share in this country's gas/condensate producing Karachaganak venture (see Part 2).