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Baseefa Ltd

Eni says Kashagan project unlikely to restart in 2015

06 May 2014

Claudio Descalzi, CEO-designate of Italian oil major Eni, told analysts in a conference call on April 29 the group was not counting on any production from Kazakhstan's huge Kashagan oilfield this year or possibly next, due to faulty welding in 200km of pipelines which resulted in widespread leaks when the project went live briefly last year.

Kashagan artificial island - Photo: Eni
Kashagan artificial island - Photo: Eni

This is the latest in a series of setbacks for the project, which was supposed to start producing nine years ago but has been plagued by delays and cost overruns. Descalzi said the pipelines would need to be replaced and the extra costs and the timeframe involved would be known in June.

Kashagan’s oil is contained in an extremely high pressure reservoir and mixed with lethal levels of hydrogen sulphide (H2S), which is thought to have corroded the welds in the pipelines.
The consortium developing the field, which includes ExxonMobil, Royal Dutch Shell, Total, CNPC of China and operator Eni, will also have difficulties raising production to planned levels once the pipeline replacement has taken place unless they can extend the life of the contract.

According to a person familiar with the project quoted by the Financial Times,  the current production-sharing contract expires in 2041, but start-up delays mean the companies will have much less time to recover their costs than initially anticipated.

Negotiating an extension would in all likelihood involve years of hard bargaining with the Kazakh authorities, the anonymous source said.


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