Kashagan Illustrates Hurdles of New Oil Production

Kashagan is the giant oil field in the Caspian Sea that was supposed to start producing oil in 2005 and ultimately give the world 1.5 mb/d.  Well, that fairy tale is over.  It is now proposed that oil will start flowing in 2013 at 370 kb/d and may reach its ultimate capacity flow by 2020 but some analysts don’t believe those dates either. 

Eni is leading the team of international companies that may build Kashagan for its Kazakh owners.  I say “may” because the deal was put on hold for nearly two years while it was re-negotiated, a process that finished about a year ago.  That process reached Kafkaesque proportions when the consortium began considering whether to boot Eni out of the leadership role.  The ultimate decision to leave the Italian company in charge might have had more to do with the jinxed nature of the project and the unwillingness of any other other company to have its name associated with its leadership than any rational business considerations.

Now the Kazakhs want the deal to go back to the drawing board since Eni has brought them new news of further delays.  The Kazakhs may try to impose more fines on Eni and/or the consortium.   But fines may be the least of the oil company's problems.  It’s not clear what equipment arrangements the group has made or how the huge increases in equipment leasing rates in recent years and the difficulties of even being able to secure drilling equipment at this time might impact a diverse group of loosely led major oil companies and their impatient, unsophisiticated, and probably very angry lease-holder country.

Kashagan may not be typical of all oil projects, but it is not atypical either.   The Khurasani project just brought on stream by the Saudis was over a year behind schedule, for example, and that was built on land by the most oil-sophisticated country on earth for which money is no object, to coin a phrase. 

Kashagan is a more difficult project than most, to be sure.  In fact, it may be the most difficult oil problem in the world.  It is not only a deep water project, but the environmental conditions of the area where it is to be built, particularly in winter, are at Hollywood horror film levels of danger to the people working the rigs. 

I bring your attention to Kashagan because it does exemplify the difficulties many oil projects are having in coming home anywhere near on time or budget.  More important, it also exemplifies the extreme lengths to which oil companies must go these days to add new production. 

People who doubt Peak Oil and call it a “theory” talk glibly about all the oil under the Arctic and all the oil shale in Colorado and Utah.  Well, Kashagan points out the costs of getting oil out of such environments and that is one reason oil is selling where it is. 

I truly doubt that speculators have much to do with the current price of oil. 

Comments

[ispyoil]

Kashagan is an extremely difficult project, however it is NOT a deep water project. It is located in relatively shallow water.The drilling is deep however and has very hot temperatures and has sour poisonous gases and very high pressures.The temperatures very from over a 100F in summer to well below zero in the winter.The crude is decent quality but has a high sour(sulfur) content.

The Italians as operator, mama mia!!!

[Scott Benson]

Don't forget the darn rare seals and beluga sturgeon that are in the way (I like seals ....) And yep, that part of the Caspian Sea is frozen 5 months out of the year, and the oil in question is loaded with sulfur.

[Andre Angelantoni]

Yes, whose idea was it to put the Italians in charge?!

Heaven is where…
The chefs are French
The mechanics are German
The police are British
The lovers are Italian
And it’s all organized by the Swiss.


Hell is where…
The chefs are British
The mechanics are French
The police are German
The lovers are Swiss
And it’s all organized by the Italians!!

André Angelantoni (notice the last name :-)
postpeakliving.com

[Brian Pursley]

Kashagan certainly illustrates how politics, political retardation, and endless negotiation can act as a hurdle and delay production.

However, in the absense of political retards, production from the time of discovery can take as little as 1 year.

www.thestreet.com/_yah...

"A Congressman followed my segment and suggested that drilling wouldn't help for 10 years or more. I know this is absolutely untrue, so I called Transocean (RIG), the biggest driller in the world. An officer of the company told me that depending on the location of the drilling, oil could be realized in as little as a year.

Ultra-deepwater fields might produce in 3-5 years. For the most remote locations, without any prior infrastructure support, that barrel may require a 4-6 year window. I suggested 8 years and he said that he could not envision a situation where it would require more than 6 years to bring a barrel out of the ocean floor."

[Mmarrkk]

Brian: why would you call Transocean to find out how long it takes to discover, appraise, plan and develop a field? They are a rig contractor; they know nothing about the development of a field, the time it takes to engineer, design, build, install and startup a facility. Once a license/lease is given, seismic data must be shot across the acreage, then the seismic data is processed through computers, and given to geophysicists. They then interepret the data and determine if any prospects are available for drilling. Then the well is drilled and evaluated. All of the above is a bare minimum of 1-1/2 years for deepwater as just drilling the well will take 4-6 months, not to mention the planning, the shooting of seismic, etc. Then once there is a discovery, plans are made to figure out what the well is telling us, and how we will need to appraise the prospect. Then we will need to drill one or more appraisal wells to make sure we understand what's down there and to figure out how to develop the field. Assuming all goes right, that's a bare minimum of 1-1/2 years, but more likely 2+ years. And that's if you only have to drill ONE appraisal wells. Most take more than that. Then once appraised, we finalize the development concept and begin the engineering of the solution. That is then put out to shipyards for final design and construction. Then the facility is built and installed. Look for 2-3 years IF YOU ARE LUCKY!! Look at BP's Thunderhorse installation?? Even before the screw up, it took them over 3 years from appraisal to get the facility designed and built.

So, doing it in one year is a joke. Doing it in 5 years is really aggressive.

We still need to do it, but just be reasonable with the time lines.

And don't call a Rig contractor to find out how to develop oil fields.

[Brian Pursley]

Mmarrkk: The reason why I would call Transocean is because they are the most knowledgeable company in the business. If you want to know why Eric Bolling would call Transocean you'll have to ask him, but my guess is because he also realizes Transocean is the most knowledgeable company in the business. The reality is doing it in less than one year is not a joke at all. Tupi was discovered in 2007 and production will begin in 2009.

[Mmarrkk]

Tupi production in 2009?? This quote in Rigzone from PetroBras "Last week, Petrobras said it's targeting a daily production of 100,000 BOE at Tupi, in a so-called pilot platform, by 2010-2011". That's their target...wanna bet it doesn't happen?

While I think the world of Transocean as a DRILLING CONTRACTOR and own a bunch of their stock, they are not the "most knowledgeable company in the business" when it comes to field exploration, development and production. They are a DRILLING CONTRACTOR. They don't even know WHERE to drill the wells!! They drill WHERE they are told, WHEN they are told and HOW they are told by Petrobras, Exxon, BP, Chevron, etc. etc. Again, one of the greatest drillers, but not a clue on oilfield development. And if you don't understand that, then we don't have much to talk about!

[Alan von Altendorf]

The current hope is that Wide Azimuth (extremely far offset) seismic acquisition will increase resolution of deep structures. I emphasize the word hope. But let's say it works, and we're able to extend coherent imaging of seismic horizons to 20,000 ft. Big challenges remain: depth migration, stratigraphy, sealing fault blocks, rock facies and reservoir modeling. I'm sorry to say that very often the big NOCs and IOCs get it wrong, because they are putting too much emphasis on computer modeling and ignoring classical geology.

The Tupi gas play is not important or interesting economically. The best 'proven undeveloped' on the planet is Iraq, followed by Libya.