$50 Billion Kashagan Field Sends First Crude To Export

Kashagan, a vast oil field in the Caspian Sea, sent its first crude for export after about 16 years in development, according to a press release from the project operator North Caspian.

North Caspian Operating Company has commenced production from the Kashagan Phase 1 offshore project and said work is on-going to safely and gradually increase production capacity to a target level of 370,000 barrels per day by the end of 2017.

A report on Bloomberg said the Kashagan project’s budget crossed $50 billion after it had been hit by multiple delays and cost overruns. Citing an emailed statement from Kazakhstan’s Energy Ministry, Bloomberg noted that the venture loaded 26,500 metric tons of crude for export into the country’s pipelines.

Related Link: OPEC Says Crude Oil Surplus Will Continue To Grow In 2017 Despite Potential Production Cut

Of that, 7,700 tons was sent to the Caspian Pipeline Consortium. Reaching stable production will take “some time,” as commissioning work continues both offshore and onshore, the ministry said.

Meanwhile, the crude from the Kashagan project comes at a time when the market is grappling with oversupply with prices at less than half the level of 2013. In fact, Organization of Petroleum Exporting Countries estimate non-OPEC supply will grow by 240,000 barrels a day next year.

But, Bloomberg said an IHS analyst thinks otherwise.

Differing Opinions

“Restarting production even in this low oil price environment is good because it means beginning to see some returns on that massive investment,” Bloomberg reported quoting an e-mailed statement from Andrew Neff, Paris-based principal analyst at IHS Energy.

“The real payoff will be phase 2,” which has the potential to increase output to 1 million barrels a day,” Neff said.

On the ownership front, Bloomberg noted that Kazakhstan raised its stake to 16.88 percent; Eni SpA (ADR) E, Royal Dutch Shell plc (ADR) (NYSE: RDS-A) and Exxon Mobil Corporation XOM each hold 16.81 percent. China National Petroleum Corp. joined with an 8.33 percent interest, and Japan’s Inpex Corp. has 7.56 percent.

Full ratings data available on Benzinga Pro.