For more info on the cancelled Qatar project see earlier thread:
Major Qatar Gas to Liquid Project Cancelled
Eni's Kashagan oil field hit by delays
February 23, 2007 10:10 PM ET
Development of the world's most important new oil field will be delayed by a further three years and require almost double the investment initially anticipated, Eni, the Italian oil group operating the field, said on Friday.
Kazakhstan's giant Kashagan oil field will now produce its first oil at the end of 2010 and hit peak production by 2019, according to Paolo Scaroni, chief executive of Eni, Europe's fourth largest listed international energy group.
The field, discovered in 2000, remains the largest to have been discovered in more than 30 years. It is critical for global supplies; today only three of the world's 4,000 oil fields exceed the 1.5m-barrel-a-day production Kashagan is expected to achieve by 2019.
Announcement of the delay and escalating costs comes just two days after ExxonMobil, the world's largest international energy group, scrapped its $15bn natural gas project in Qatar because of runaway expenses.
Cambridge Energy Research Associates, the consultant, estimates costs of major oil and gas projects have risen 53 per cent across the industry because of tight labour and equipment supplies in the past two years.
Kashagan will now need $19bn to develop to the initial stage of producing 300,000 barrels a day by early 2011. That is up from the original estimate of $10.3bn and the $14-15bn guidance given to investors at last year's strategy review. However, the field's peak production would be 25 per cent higher than initially thought, Mr Scaroni said.
A third of the project’s extra cost has arisen from the need to move workers’ quarters away from deadly hydrogen sulphide hazards. The remainder covers foreign exchange, labour and equipment cost inflation and the expansion of the project.
Financial Times/MSN
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Chief Executive Paolo Scaroni was upbeat about Kashagan, saying the company is confident that the reserves will be greater than previously estimated, and that production will plateau at 1.5 million barrels a day in 2019, instead of the company's previous estimate of a 1.2-million-barrel-a-day plateau in 2016.
"It's a mix of bad and good news," he said in a telephone interview. "Yes, the time and the costs of the project are growing. The good news is that Kashagan is even a bigger giant than we thought. Every well we have drilled has been a success. Even the satellite areas are looking promising."
Wall Street Journal/Rigzone
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Developing Kashagan is painfully slow
Published: January 22 2007 23:21
Kashagan is perhaps the world’s most technically demanding oil field, making wrong decisions costly and possibly fatal.
There are no other fields like it and therefore contractors and the oil companies that employ them are breaking new ground at nearly every step. One of the consortium’s first tasks was to build artificial islands to tap the oil from beneath the shallow waters of the landlocked Caspian Sea, which is frozen almost half of every year.
To prevent shifting ice from damaging drilling rigs, artificial reefs and barriers also had to be built.
Frank Verrastro, director of the energy programme at the Centre for Strategic and International Studies, said he was not surprised about the cost overruns, which come amid steep industry-wide price inflation for anything from rigs to steel and labour.
Meanwhile, the environment remained a top priority constantly monitored by the Kazakh authorities still suffering from the legacy of Soviets, whose abandoned well-heads on the sea floor continue to spring leaks, threatening the sturgeon and the lucrative caviar they produce.
However, fish, birds and seals are not the only creatures under threat. This year, the oil companies developing Kashagan were forced to build a 150m pier and move on to it living quarters, control rooms and other facilities after simulations showed they were in danger of mass poisoning.
In fact, the risk of hydrogen sulphide, which is found in high quantities in Kashagan’s oil, escaping as it is being produced and processed is so acute that in certain areas workers must carry gas masks.
All this has delayed the development of the field, which was discovered in 2000, by up to five years, and increased costs by several billion dollars. This has led to the most recent complication, the announcement that KMG would bring in auditors to look into the spiralling costs and delays.
Financial Times
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