Rising Tengiz, Kashagan output boosts Kazakh state producer KMG

London — Kazakhstan's giant Kashagan and Tengiz fields ensured stable oil production volumes for state producer KazMunaiGaz in 2019, offsetting declines at the smaller Karachaganak field and assets operated by the company itself, results published Wednesday showed.

The country's largest crude producing field, Tengiz, produced 651,000 b/d in 2019, up 4.1%, despite maintenance to a gas processing plant in August-September, as work continued on a "third generation" expansion that is expected to lift output to around 900,000 b/d in 2023. Tengiz is operated by a Chevron-led consortium, in which KMG holds a 20% stake.

Annual output from the Kashagan field rose 6.9% to 296,000 b/d, according to the KMG statement. However, with production ramping up, output averaged 422,000 b/d in the third quarter, the operating consortium has said. In the fourth quarter, Kashagan output dropped back to 344,000 b/d on average, KMG said Wednesday, likely reflecting a gas compressor issue disclosed in November. KMG holds an 8.44% stake in the consortium that operates Kashagan.

Liquids output from Kazakhstan's third-largest producer, the Karachaganak field, dropped by 7.3% on the year to 220,000 b/d, which KMG said was mainly due to a 25-day shutdown of processing facilities in September-October. KMG holds a 10% stake in the field.

Kazakhstan produces close to 2 million b/d of crude and is officially a party to production cuts led by OPEC and Russia. But this is not thought to have constrained output from its main oil fields, which supply the CPC crude export route. This route runs from western Kazakhstan across southern Russia to the port of Novorossiisk.

The three largest fields are considered highly technically challenging due to their great depth, and high pressure and temperature levels, as well as high levels of sulfur, which is mostly stripped out.

KMG noted plans to further expand the capacity of the CPC route within Kazakhstan to 72.5 million mt/year, or 1.57 million b/d, by 2023. Loadings could well exceed this given that additional volumes are sourced from fields in Russia's portion of the Caspian Sea -- amounting to 12% of 2019 loadings.

CPC loadings at Novorossiisk peaked at just under 1.5 million b/d in December.

KMG's net oil production from all the fields it has stakes in was unchanged on the year at 485,000 b/d.

Operated fields

Production decline accelerated at fields operated by KMG in 2019, with KMG's own share of oil output from such fields falling by 1.6% to 307,000 b/d. It noted steep output declines at two joint ventures, Kazgermunai and PetroKazakhstan, of 18% and 16% respectively, describing the falls as "in line" with expectations.

KMG has signed a series of deals with foreign companies recently aimed at boosting output from legacy acreage and finding new resources. Such partnerships have been signed with BP, Italy's Eni, Norway's Equinor, Russia's Lukoil and Tatneft, and Azerbaijan's SOCAR. The deal with BP reflects renewed interest by the UK major in prospects east of the Caspian, having previously confined its regional focus to Azerbaijan.

In comments provided to S&P Global Platts in January, KMG said the goal of such deals was to "ensure organic growth of reserves" as part of the company's 2018-28 strategy. The company's plans include digitization of operations, infrastructure debottlenecking and improvements to enhanced oil recovery efforts, including water-flooding and polymer flooding.

KMG's operated production was previously overseen by a separately managed upstream unit, listed on the London Stock Exchange, but this was incorporated back into the parent in 2018. A long-delayed privatization of the parent company is now being prepared.

KMG also published for the first time reserves estimates in accordance with the Society of Petroleum Engineers' PRMS standards. At end-2019, the company's 2P (proved and probable) crude and condensate reserves amounted to 3.99 billion barrels, its natural gas liquids to 189 million barrels, while 2P gas reserves were 6.3 Tcf, it said.