August 16, 2010 / 3:54 PM / 10 years ago

Kazakh oil minister: costs key to Kashagan Phase 2

* Minister wants “reasonable” costs - agencies * KazMunaiGas has said Phase 2 could be postponed

* Operating company says discussions planned

ALMATY, Aug 16 (Reuters) - Cost control should take priority when developing the second phase of the Kashagan oilfield in Kazakhstan, the world’s biggest oil find in over 40 years, news agencies quoted Oil and Gas Minister Sauat Mynbayev as saying.

“It’s linked more than anything to costs. We don’t need to incur insane costs on the second phase,” Novosti-Kazakhstan quoted Mynbayev as saying after a government meeting on Monday.

“We want costs to be reasonable, and we have such authority over the contract,” the minister said.

The Kashagan oilfield in the Caspian Sea is the world’s biggest oil discovery since Prudhoe Bay in Alaska in the 1960s. Commercial production is due to start by the end of 2012.

An international consortium comprising Eni (ENI.MI), Total (TOTF.PA), Royal Dutch Shell (RDSa.L), ConocoPhillips (COP.N), ExxonMobil (XOM.N), Inpex (1605.T) and Kazakh state oil and gas firm KazMunaiGas [KMG.UL] is developing the project.

The minister’s comments follow those of KazMunaiGas President Kairgeldy Kabyldin, who was quoted last week by local news agencies as saying the project’s second phase was likely to be postponed until 2018 or 2019.

Kabyldin did not specify the original Phase 2 target date.

North Caspian Operating Company B.V. (NCOC), which runs the Kashagan project, said discussions on the second phase of the project would be undertaken over the next few months.

Paul Taylor, external communications manager for NCOC, said a “careful review” of the overall second-phase design concept began in 2009.

“The review, which is being led by NCOC, is seeking to ensure that Phase II delivers a long-term contribution to Kazakhstan, while at the same time maintaining the highest safety and environmental standards,” Taylor wrote in a response to a question on the minister’s statement.

“The results of the review will require the approval of the co-venture partners, the RoK (Republic of Kazakhstan) government and regulatory authorities, and discussions will be undertaken over the coming months.”

Italian energy major Eni, one of the project partners, said in March that first production was due by the end of 2012 and output in 2013 would be around 50,000 barrels per day (bpd).

Visor Capital brokerage said production during Kashagan’s first phase is expected to reach about 300,000 barrels per day (bpd) shortly after launch, before rising to 450,000 bpd.

The second phase will raise production to around 1 million bpd and, after a third phase, peak production is expected to be around 1.5 million bpd, it said.

Kabyldin was also quoted by agencies last week as saying KazMunaiGas would invest $8 billion in Kashagan by 2014.

“Based on the group’s 17 percent stake in the project, we estimate that this investment means total spending of all participants on the project between now and 2014 at around $47.5 billion,” Visor Capital wrote in a research note. (Reporting by Olga Orininskaya, writing by Robin Paxton)

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