Shell withdraws from Kazakhstan offshore oil project

Marco Green
October 22, 2019

Royal Dutch Shell abandoned two oil projects off Kazakhstan after stubbornly high costs made them uneconomic.

Oil majors are quitting two projects in the Caspian Sea in Kazakhstan because of high costs and low profitability, a unit of Kazakhstan's state oil and gas firm KazMunayGas said on Monday.

Kazakhstan had hoped that the consortium could be working with Shell on the development of the Khazar field, which is close to the giant and already producing oil field Kashagan operated by the NCOC consortium.

Energy companies have spent more than $50 billion on developing Kashagan which has been plagued by delays and cost overruns. This time around, the steep expense couldn't be justified.

The Kalamkas-Khazar project costs were estimated at $5 billion with production starting in the late 2020s, according to Wood Mackenzie analyst Ashley Sherman. "But this is another reality check for the Caspian region's oil and gas industry", he said.

Kazakhstan is considering whether to seek new investors for the Kalamkas field, which is also due to be returned to the state if no development plan is approved by the end of October.

"Kalamkas Sea and Khazar are the fields that will undoubtedly attract future interest from global investors, just like nearby exploration blocks were since Kazakhstan's tax reforms in 2018".

Shell, KazMunayGaz and Oman Oil Co were partners in Khazar, part of the Pearls offshore block. The Anglo-Dutch oil major has already invested $900 million in the field, the ministry said.

No one at Oman Oil could be reached for comment.

The ministry reminded that the Agreement on the Kalamkas-Sea field was signed in December 2018 between Kazakhstan and the participants of the North Caspian project. The companies have worked hard to reduce costs at Kalamkas-Sea, but the economics remain marginal, people familiar with the matter said in September. Yet the government has a history of disputes with foreign investors over revenue, taxes and cost-sharing at the country's energy projects.

Other reports by Click Lancashire

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