Another giant oil project, Kazakhstan’s Kashagan is set to go operational in the 4th quarter of this year. Does this mean oil prices are set to move north?
In a move aimed at boosting the local economy, Kazakhstan along with a group of oil companies led by Chevron, have approved the investment of $36.8 billion in the country’s Tengiz oil field. This is despite the prevalence of low prices that the industry is suffering from.
Kazakhstan’s Tengiz oil field is one of the biggest in the world. Its production accounts for more than third of the country’s total crude output. Kazakhstan, a former state from the Soviet era, is the second biggest oil producer after Russia.
Under the plans of this deal, in which Lukoil and Exxon Mobil have a stake, Tengiz’s annual production is set to increase from the current 27 million tonnes to 39 million tonnes, equivalent to 850,000 barrels per day, said Kazakhstan’s Energy Ministry and its foreign partners said in a joint statement.
The Tengiz expansion is likely to be the biggest investment decision the oil industry will see this year.
The news of this deal comes at a time when oil companies are feeling increasingly squeezed due to low oil prices. Its potentially maximum output will roughly match the current oil production of Britain.
“Today we are witnessing a historic event not just for the oil and gas sector but for the whole country,” said Kanat Bozumbayev, Kazakhstan’s Energy Minister to reporters in Astana.
According to Bozumbayev, the investment would generate nearly $120 billion in extra tax payments by 2033, when the contract is set to expire.
In a separate statement, Chevron disclosed that the project has a budget of $27.1 billion for facilities, $6.2 billion contingency and escalation and $3.5 billion for wells.
As per Ted Etchison, Tengizchevroil’s General Director, the project will be financed by a combination of own funds, borrowings and contributions from partners. He did not provide any further breakup. However he did mention that documents have been sent to banks for a 3 to 7 year loan agreement for $3 billion.
Kazakhstan will have a stake 20% in the joint venture via KazMunayGaz KMGZ.KZ, a state gas and oil firm. While Exxon Mobil will hold a stake of 25%, Chevron 50% while the remaining stake will be held by Lukarco, which is controlled by Russia’s LUKOIL.
Ever since it gained independence since 1991, oil has been the country’s major export. Since then the nation of 18 million has nearly tripled its oil production, although of late, production has suffered to ongoing low oil and gas prices.
On a similar note, Kazakhstan’s another giant oil project, Kashagan, is set to start pumping oil in the fourth quarter of this year.
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