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NCOC and Agip to dispute Kashagan fine

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North Caspian Operating Company B.V. (NCOC), the operator of the Kashagan oil field, and Agip KCO intend to challenge the $737 million fine in court. The companies were fined by Kazakhstan's ecological authorities for excessive flaring after an accident at Kashagan, tengrinews reports. 

"There is a standard procedure: we impose sanctions and the subsurface user has a right to appeal the fine. As far as I know, they are now filing the law suit, or maybe have already filed it. They will be challenging our calculations in court, and trying to prove that their situation did not correspond with the counts whey were penalise on. It is a normal working process," Vice-Minister of Environment and Water Resources Bektas Mukhamedzhanov told Interfax-Kazakhstan.

The fine was issued by the Ecology Department for Atyrau Oblast and found Agip KCO and North Caspian Operating Company B.V. (NCOC) responsible for harming the environment with polluting emission when flaring sour gas at they refinery. They estimated the damage caused to the environment at $737 million. 

There was a accident at the on-shore facility refining Kashagan oil on September 24, 2013 when hydrogen sulphide started leaking from a raptured pipe. Hydrogen sulphide is a dangerous associated gas found in large amount at the Kashagan field located in the Kazakhstan section of the Caspian Sea. Because of the accident residual gas from the refinery and the oilfield was redirected to the flare devices.

According to the inspection report the total amount of excessive flaring made 2.8 million cubic meters.

Commercial production at the gigantic Kashagan oilfield initially started on September 11, 2013, but was suspended after two weeks because for a gas leak. The production was haltered to seal the leak and restarted on October 6 only to be halted again 3 day later because another gas leak was found. 

A part of the defective pipe was dug up and set to a lab in Britain for tests. The experts believe that there may be hairline fractures in the pipe caused by corrosion occurring because of contact with sulfurated hydrogen (Kashagan oil field has a high content of sulfured hydrogen gas).

Initially, Kashagan was expected to produce around 8 million tons of oil before the beginning of 2014. It was also expected that oil production at the first stage in 2013 and 2014 will make 180 thousand barrels per day and 370 thousand barrels per day after that during the second stage.

The Kashagan oil field is developed by North Caspian Operating Company (NCOC). The shareholders are AgipCaspian Sea B.V. (16.81%), KMG Kashagan B.V. (16.81%), ConocoPhillips North Caspian Ltd. (8.4%), ExxonMobil Kazakhstan Inc. (16.81 %), Inpex NorthCaspian Sea Ltd. (7.56 %), Shell Kazakhstan Development B.V. (16.81%) and Total EP Kazakhstan (16.81%). ConocoPhillips has withdrawn from the Kashagan project selling its share to Kazakhstan's KMG. KazMunaiGas is expected to subsequently resell the share to Chinese CNPC.

Agip KCO, a subsidiary of Eni, is NCOC's arm responsible for the execution of the first phase of development of the giant Kashagan field which holds around 35 billion barrels of oil. Kashagan is an offshore field located in the Kazakhstan section of the north Caspian Sea and is considered the world’s biggest oil field after the Prudhoe Bay located on Alaska's North Slope.

Agip is also going to be responsible for the project's onshore elements during the second phase of the Kashagan development.

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March 23 2014, 15:17

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