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Kashagan oil output crosses 300,000 b/d, but 'giant' increases unlikely: Shell executive

London β€” Kazakhstan's giant Kashagan oil field is achieving new production highs everymonth and has done better than 300,000 b/d, but development beyond the currentphase is likely to be about "discretionary step-ups" rather than giant steps,Shell country chair and vice president Olivier Lazare said Thursday.

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Speaking at the IP Week conference in London, Lazare declined to specify thecurrent production level, saying there were still reliability issues with thefirst phase, which started producing in 2016 after more than $50 billion ofinvestment and multiple delays, and has a target of 370,000 b/d.

Kashagan, a 10-billion-barrel, high-pressure, high-temperature field developedby a seven-company consortium in the Caspian Sea, is viewed as an industrylandmark.

The project's numerous difficulties have attracted scorn at times. But it isnow boosting supplies of the high-quality CPC crude blend delivered atNovorossiisk on the Black Sea coast, which amount to well over 1 million b/d.

Lazare noted that average production from Kashagan last year was over 225,000b/d. But he sounded cautious about further big investments in the context ofweaker oil prices and the technical challenges involved, saying the consortiumwas still learning from the first "experimental" phase.

He confirmed the consortium is focusing on optimizing operations for the timebeing, rather than further development.

"We're really talking about not doing the giant things again, but reallylooking at discretionary step-ups in moving forward. We're defining thisfuture as we learn about the sub-surface," he said.

"We are producing right now from something like 16 wells -- these are giantwells. We're learning about the sub-surface. There's huge uncertainty. Andthat's also why we're prudent about the future. We're thinking about it. Wedon't want to leave this very large resource," Lazare later told reporters.

"The world has changed. It was a different oil price. [Kashagan] is sour, it'shigh pressure and it's offshore so as a starting point it doesn't start bybeing fundamentally cheap as a development. But it's very big, so that's thepositive side," he said.

The comments chimed with those of Total upstream president Arnaud Breuillac,who in an interview with S&P Global Platts this week said of Kashagan: "Thereis some work being done to think what could be the next stage, but for now thepriority is really to stabilize the potential of the field as it is today,with what is installed."

KARACHAGANAK 'PLATEAU'

Lazare also cautioned against any expectations of big output increases fromthe similarly giant Karachaganak condensate field, which also contributes toCPC.

Shell gained a stake in Karachaganak in 2016 with its purchase of the UK's BG,and Lazare credited its involvement in the achievement of record oil and gasoutput last year of 390,000 b/d of oil equivalent, of which the liquidsportion was 230,000 b/d.

Lazare said discussions -- which have reportedly been fraught -- were centeredon sustaining a plateau of production from Karachaganak -- involvingreinjection of gas to support pressure levels -- rather than aiming for bigincreases.

He said that building gas processing facilities at the site was a"possibility." Such a step could reduce the field's dependence on gasprocessing facilities located across the nearby border with Russia inOrenburg.

Lazare expressed dissatisfaction with the price the partners get for gas soldto Russia's Gazprom. He noted an "inter-dependency" as Gazprom is keen tomaintain the Orenburg gas processing plant in the face of declines in its ownproduction in Russia. Gazprom is not part of the Karachaganak consortium.

"At the moment we're talking about a plateau extension project. To make a bigleap we need some other imagination. I never rule anything out," Lazare toldreporters.

-- Nick Coleman, nick.coleman@spglobal.com

-- Edited by Kevin Saville, newsdesk@spglobal.com