"India’s largest oil explorer is attempting to revive a stalled overseas expansion plan by buying into a 46 billion USD project that’s eight years behind schedule and cost twice as much as expected. Oil & Natural Gas Corp. (ONGC) announced the company’s biggest overseas acquisition yesterday, the 5 billion USD purchase of ConocoPhillips (COP)’s 8.4 percent stake in Kazakhstan’s Kashagan project. Touted as the biggest find since the 1960s when it was discovered in 2000, the field beneath the Caspian Sea is expected to produce 370,000 barrels a day from next year."
this news came just a week after this story
Bloomberg: Exxon, Shell Said to Face Delay on Kashagan Output Boost
"Exxon Mobil Corp. (XOM), Royal Dutch Shell Plc (RDSA) and their partners in Kazakhstan’s Kashagan oil field face a delay of at least two years on a plan to boost output 20 percent, reducing the time they have to recoup costs in the 46 billion USD project that’s already running eight years late, according to two people with knowledge of the matter.Kazakhstan has told the partners to put the 5 billion USD step-up plan, taking output to as much as 450,000 from 370,000 barrels day, on hold until they study how the start of production next year affects the deposit, the people said, asking not to be identified because the information is private....Exxon and Shell are seeking operational control as the venture weighs an even more expensive second phase to take production to 1 million barrels a day, 54 percent of Kazakhstan’s 2011 crude output. Work on the interim project, which involves injecting natural gas back into the field to help force out more oil, was due to start this year. President Nursultan Nazarbayev urged the nation to tap domestic gas output to “walk away from dependence” on imports in a January speech. In September, he called for a review of Kashagan’s further expansion plans. "
from Wikipedia
"Kashagan Field is an offshore oil field located in Kazakhstan.[1] The field is situated in the northern part of the Caspian Sea close to the Kazakhstan city of Atyrau. The field was discovered in 2000 and was one of the larger discoveries in that decade, it is estimated that the Kashagan Field has commercial reserves from 9 billion barrels (1.4×109 m3) to 16 billion barrels (2.5×109 m3) of oil. The field is offshore in a harsh environment, where sea ice is present in the winter and temperatures from -35 °C (-31 °F) to 40 °C (104 °F) can be encountered. Commercial production is expected to start by the end of 2012, according to Kairgeldy Kabyldin, the chief executive of Kazakhstan's state oil and gas company KazMunaiGas.[2] It has been designated as the main source of supply for the Kazakhstan-China oil pipeline.[3] Kashagan is considered the world's largest discovery in the last 30 years, combined with the Tengiz Field.[4] CNN Money has tagged Kashagan oil and gas field the most expensive energy project in the world. Its development has already absorbed 116 billion USD, which makes the project one of the most expensive discoveries of the last 40 years..The whole project is expected to cost 187 billion USD and it is expected to start production from the project's experimental program is late 2012 with production of 75,000 barrels (11,900 m3) of oil per day. It should reach a production rate of 1.5 million barrels per day (240,000 m3/d) towards the end of 2010s.[13]."
Let's see...187 BB USD of developments costs for 16 BB barrels = 11.6 USD / barrel in development costs. No idea how this fixed cost compares to other projects. The forward curve for Brent crude currently ranges from 108 USD / barrel for January 2013 to 89 USD / barrel in December 2019 and from the sparse data that I can find it appears that CPC blend crude currently trades at 1-3 USD below Brent.
Is this a sign that
- US shale (aka tight) oil plus Canadian tar sands have made future supply less of an issue for Western companies (see here)
- Western companies are getting frustrated with the Kazakh government
- Indian and Chinese state oil companies are getting desperate for supply
- all of the above
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