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ExxonMobil, Shell to extend contract on Kazakh Kashagan field

June 24 2014, 09:41

ExxonMobil and Shell companies intend to extend the contract on the Kashagan project for another 20 years, a source from the operator of the project for the field's development, North Caspian Operating Company (NCOC), told trend.

"Yes, the shareholders of the international consortium, namely, Shell and ExxonMobil have intentions to extend the contract on the Kashagan field for another 20 years. The negotiations are underway," the source said.

Nevertheless, the source refused to say on which conditions the contract may be extended and what the country's government can offer.

The NCOC source pointed out that it is planned to sign a corresponding document between the consortium and the country's government on this issue, bloomberg reports.

Previously, a source at Kazakhstan's KazMunaiGas national company told Trend that the country's government and ExxonMobil and Shell have had complex negotiations on extending the contract for the development of Kashagan for 20 years, that's to say, from 2041 to 2061. In exchange of the extension, the government demanded these shareholders assist in the implementation of the state program for industrialization.

The NCOC representative said that Kashagan's problematic oil and gas pipelines on which gas leaks were detected, will be completely replaced.

"Both of the pipelines require a complete replacement and the assessment results will also confirm this. Currently, the operator (NCOC) is engaged in developing a plan for the complete replacement of the pipeline," NCOC representative said.

He said a plan will be developed to replace the pipelines taking into account the possibility of an early resumption of production. As a precaution, in order not to lose time, the consortium has already launched a tender process to purchase pipeline segments.

Previously it was reported that on June 1, 2014 the participants of the North Caspian Sea Production Sharing Agreement (NCSPSA) signed a memorandum of understanding with Kazakhstan to further develop the stages of completion and mining of the Kashagan field.

Oil production at Kashagan field started on September 11, 2013. However, on Sept. 24, the usage of the field was suspended due to a gas leak on a pipeline running from the D Island to the Bolashak Integrated Oil and Gas Plant.

The pipeline sections were supplied by two Japanese companies -- Sumitomo and JFE, and the Italian company Saipem was engaged in laying the pipes.

Experts found out that the sulfide stress cracking was the immediate cause of the pipeline leaks. The sulfide stress cracking was itself caused by unforeseen increase in hardness of the metal at very small sections of the pipeline.

Resumption of production will depend on the results of the research, which should be available by late Q2, but the production is not expected to be resumed in 2014.

The project participants are: KMG Kashagan B.V., AGIP Caspian Sea B.V., CNPC Kazakhstan B.V., Ex.xon Mobil Kazakhstan Inc., INPEX North Caspian Sea Ltd., Shell Kazakhstan Development B.V., Total E&P Kazakhstan.

NCOC is the operator under the North Caspian Sea Production Sharing Agreement, acting on behalf of the North Caspian Consortium.

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