INTERVIEW: KazMunayGas seeks consortium to develop deep Caspian oil reserves

KazMunayGas is assembling a multinational consortium including Shell, Chevron, Sinopec and CNOOC to explore ultra-deep formations in Kazakhstan's Caspian region, opening a new frontier in one of the world's most significant hydrocarbon provinces, Kurmangazy Iskaziyev, first deputy chair of KazMunayGas' management board, said during an interview in Almaty.

"Replenishing reserves and the resource base is a top priority for us. We have worked on this issue for a long time, conducting a regional study of 15 sedimentary basins in the Republic of Kazakhstan," Iskaziyev told Platts, part of S&P Global Energy, on Oct. 1.

The initiative targets "highly promising" formations between 5.5 and 10 kilometers deep — well below the current maximum depth of discovered fields in Kazakhstan — and will require large-scale, high-resolution seismic surveys covering 60,000 linear kilometers over three years, according to Iskaziyev. The project is set to begin next year, he said.

The push to replenish Kazakhstan's reserve base comes as one of the country's flagship producing projects, Karachaganak, has started to mature, while the Tengizchevroil project is nearing its plateau and Kashagan has reached its plateau. All three projects face contract expiration windows between 2033 and 2041, creating urgency to identify the next generation of commercial fields to sustain export volumes via the Caspian Pipeline Consortium and other routes.

Consortium talks

Negotiations on forming the exploration consortium are currently underway with Shell, Chevron, Sinopec and CNOOC, Iskaziyev said, with CNOOC's deepwater experience in Guyana cited as directly relevant to the technical challenges posed by Kazakhstan's deep-seated geological traps.

"We have held discussions with the companies interested in participating, and negotiations regarding the formation of a consortium are currently underway," Iskaziyev said.

The involvement of Shell is particularly notable given that the company is simultaneously engaged in arbitration proceedings with Kazakhstan. Kazakhstan is pursuing multi-billion-dollar compensation from international companies operating in the country for claimed cost overruns and delays to the project's expansion.

Iskaziyev expressed confidence that current disputes would eventually be resolved, framing Shell's continued engagement as a signal of confidence in Kazakhstan's investment climate. "It reflects Kazakhstan's image and its recognition of our resource potential," he said.

Shell declined to comment on the KazMunayGas statements.

Chevron's participation can also mark a strategic expansion for the US-based producer, which has historically confined its upstream Kazakhstan activities to its stake in Tengizchevroil and involvement in Karachaganak, according to Iskaziyev. He said Chevron had "never ventured beyond those projects" but is now ready to invest despite current challenges.

Chevron said Oct. 6 it is constantly evaluating opportunities but does not comment on commercial matters.

In a further sign of renewed international interest, Iskaziyev said BP, which exited Kazakhstan in 2009, is now returning and that a contract for a major block is likely to be signed before the end of the year.

BP did not answer a request for comment Oct. 6.

Iskaziyev also said that KazMunayGas is ready to form a joint venture with ExxonMobil to expand the Kashagan oil field, but the companies have not yet reached any agreements, in contrast to recent media reports.

Bloomberg reported Aug. 6 that ExxonMobil flagged to Kazakhstan its readiness for a US$80 billion joint investment in Kashagan, which is contingent on resolving a long-running US$150 billion dispute between the government and international companies. The proposed investment, in an equal joint venture with KazMunayGas, would tap the undeveloped western part of the massive Kashagan, according to the publication.

"We haven't sat down with Exxon for direct negotiations yet. However, it is clear that they are a major player interested in participating. If they do express interest, we will coordinate with the government and evaluate the best terms for moving forward," Iskaziyev said.

ExxonMobil declined to comment Oct. 12.

Iskaziyev stressed that other companies that participate in the current Kashagan venture should also be allowed to have their say in the expansion project.

"The approach must be balanced. It isn't a case of simply acceding to a request just because someone wants it. This is an international consortium with other participants; it requires lengthy negotiations," Iskaziyev said.

Sanctions shadow

But not all of KazMunayGas's partnerships are advancing smoothly. Iskaziyev confirmed that the Kalamkas-Khazar offshore project, developed jointly with Russia's Lukoil, has effectively stalled following the imposition of US sanctions on the partner. The restrictions targeted the project, while the US issued specific authorizations for continued operations at Karachaganak and Tengiz.

"Our negotiations with Lukoil are proceeding in light of this situation, as the project has effectively stalled," Iskaziyev said, adding that Lukoil's founder, Vagit Alekperov, is held in high regard but that the current geopolitical environment constrains progress.

"However, this is the current situation we are in, and we are proceeding based on the circumstances," he said.

To proceed with the project, KazMunayGas needs to build a platform, which it cannot do on its own, Iskaziyev clarified. "We need to build that platform with a partner. We are also mindful of the environmental impact of the Caspian Sea's receding water levels, so naturally, we need to build the platform sooner rather than later," he said.

Iskaziyev said it is unclear if there is a chance to get a waiver from the US Treasury Department's Office of Foreign Assets Control for the Kalamkas-Khazar project. OFAC did not respond to Platts' request for comment sent Oct. 2.