KAZAKHSTAN - The Offshore 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 (see OMT).

The most important of these is a 5,600 sq km tract which has the Kashagan super-giant. Because Agip was chosen as operator for this - at a meeting in a Heathrow airport hotel in Feb. 2001 - the group's name in the JV was changed to Agip Kazakhstan North Caspian Operating Co. (Agip KCO). On June 28, 2002 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 recent study by Wood Mackenzie said Kashagan had at least 10 bn barrels of liquids and 25 TCF of associated gas.

The consortium, which so far has invested about $1.2 bn in the area and should spend another $7 bn in 2003-06, consists of the following: Agip (16.67%), ExxonMobil (16.67%), Shell (16.67%), TotalFinaElf (16.67%), BG (16.67%), Phillips (now ConocoPhillips - 8.33%), and Inpex of Japan (8.33%). The partners restructured the shareholding in mid-June 2002, dividing among themselves shares sold by BP (9.52%) and Statoil (4.76). Initially, TotalFinaElf wanted to buy the BP and Statoil stakes. But the other partners exercised a pre-emption right.

The drilling of the first of six wells began in Aug. 1999, following delays from 1998 and after the enormous and expensive drilling barge and rig complex Sunkar was put into place. The well was completed in May 2000 at a depth of 4,500 metres below the seabed under 3 metres of water.

With Shell having been technical leader during the exploration phase, the well reached the eastern tip of Kashagan and found oil and gas in a Palaeozoic, Pre-Caspian subsalt carbonate similar to the geology of Tengiz. Shell asked its partners not to reveal any details until it made all tests. Drilling of a further 500 metres was done to gather more data on the structure, with the first of two tests in July 2000 flowing at 3,780 b/d of 42-44o API oils and 200,000 CM/d of gas from the lower section of the well, called Kashagan East-1.

The second well into Kashagan West, Kashagan West-1, was spudded in Oct. 2000. It reached its target in May 2001 and flowed at 3,400 b/d of oil. As in the case of the first well, the drilling was the most widely watched in the world, given Kashagan's huge potential. An appraisal programme followed, with two assessment wells drilled at Kashagan East and a third one to be completed in Oct. 2002.

The FEED partners Fluor Daniel and Parsons are to present the field development concepts to the partners in Feb. 2003. Halliburton in June 2002 got a $120m two-year extension of its contract to provide integrated drilling services. Drilling has also been done by Dresser and Kellogg. The development will start on two artificial islands at Kashagan East, with one already built to drill the Kashagan East-5 appraisal. The island will be extended and used for collection and initial separation of oil and gas.

Test production is to start in 2005. Agip, under government pressure to begin producing as soon as possible, will try to start commercial production at the rate of 100,000 b/d and 3 BCM/y of gas before end-2005 or in early 2006. Agip is to have a gas processing plant built between the towns of Atyrau and Makat. The plant will also produce LPG.