KAZAKHSTAN - The Kashagan Field.

The consortium Offshore Kazakhstan International Operating Co. (OKIOC) has 12 offshore exploration blocks, the most important in the northern Caspian. This is where the drilling of each well costs over $100m - the most expensive in the industry - because the sea there is covered with ice in winter. Usually the ice only begins to break up in April or May. The Kazakh sector lies in shallow waters.

The most important of these is a 5,600 sq km tract which has the Kashagan super-giant oilfield which is also rich in natural gas. Because Agip was chosen as operator for this - at a meeting in a Heathrow airport hotel in February 2001 - the group's name in the JV was changed to Agip Kazakhstan North Caspian Operating Co. (Agip KCO).

In April 2005, BG Group of the UK complete the sale of its 16.67% share in OKIOC's PSA, which includes Kashagan, for about $1.8 bn. The sum was about $500m more than predicted, to take into account capex and interest accrued since BG announced its intention to sell out two years earlier. The shares were purchased by five of the six remaining members of the consortium - ENI, ExxonMobil, Royal Dutch/Shell, Total and ConocoPhillips. The sixth remaining member, Japan's Inpex, did not exercise its pre-emption rights.

The way for the deal was cleared by an agreement between the five purchasers and the Kazakh government, whereby the five later sold 50% of their allotment to KMG which now holds 8.33% in the PSA. The then Kazakh Energy Minister Vladimir Shkolnik closed that deal.

KMG had been seeking to buy all or part of BG's stake for months, but the other members of the consortium resisted the move. The BG sale price set on Jan. 1, 2003 was $1.23 billion. A BG spokesman said that figure remained the same, but capex and interest over two years and three months raised the total amount of the transaction to about $1.8 bn.

Other than Kashagan, this PSA area includes more recent offshore discoveries on the Kalamkas, Kairan, Aktote and Kashagan South-West parts of the licence area. Kashagan, the main field in the 40-year PSA, is supposed to start producing crude oil before end-2008, and the output should eventually exceed 1.5m b/d. But the group has recently indicated that, while the end-2008 start-up date might be met, first production could be lower than

On June 28, 2002 Agip announced that Kashagan contained 7-9 bn barrels of recoverable oil and that two successful wells drilled 40 km apart showed there were about 38 bn barrels of oil in place - making this one of the biggest oil finds in recent decades. A July 2002 study by Wood Mackenzie said Kashagan had at least 10 bn barrels of liquids and 25 TCF of associated gas. In 2003 Agip said the field's recoverable reserves amounted to 13 bn barrels of oil (see the background in Vol. 63, Gas Market Trends No. 4).