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The Oil Chronicles
October 2015
Kazakhstan is currently not considering buying shares of BG Group plc in the Karachaganak project and thereby increasing its share in the project, the Ministry of Energy of Kazakhstan told Trend. "To date, no requests from the project participants on the issue of alienation of their participation in both the Karachaganak and other major projects have been reported to the Ministry," the Office said. Early April 2015 Royal Dutch Shell reported reaching an agreement on buying the BG Group for $70 billion. The parties expect the closing of the deal to take place at the beginning of 2016.
The BG Group later said in their 2014 yearly report that, in the event of a merger with Royal Dutch Shell, it can lose its 29.5 percent stake in Kazakhstan's Karachaganak project, because in the event of a change of control of the BG Group Kazakhstan has the right to exercise their priority right to buy company shares in the project. "In the event of a change of control of the BG Group Kazakhstan can claim the right to purchase shares of the company in the final production sharing agreement governing the work on the gas and gas condensate Karachaganak field," the British company report said.
At the same time, the Ministry noted that according to the terms of the Final Production Sharing Agreement, each contractor company shall has the right to assign (sell) its share in the project. In this case, the decision on the implementation of the priority rights of Kazakhstan in accordance with the current legislation was adopted on the basis of the recommendations of the State Interdepartmental Committee on Exercise of the Preemptive Right.
Scottish oilfield services giant Wood Group won a contract worth millions of dollars from the US-based Bechtel to work at the Tengiz oil field in Kazakhstan. This was reported in a statement from the company, which also noted that Wood Group will provide automation solutions consisting of detailed engineering, equipment management, and remote device cameras, for the Tengizchevroil company project to increase the capacity for oil storage.
On October 14, the former Prime Minister of Kazakhstan Nurlan Balgimbayev passed away after a prolonged illness in Atyrau. In different years he served as the Minister of the oil and gas industry; the President of the “Kazakhoil” National Oil and Gas Company. He was the Prime Minister of the Republic of Kazakhstan from 1997 till 1999. He later served as the President of the “Kazakhoil” National Oil and Gas Company CJSC; the President of “Kazakhstan Oil Investment Company” JSC. In December 2007, was appointed Adviser to the President of the Republic of Kazakhstan and served in this capacity until 2009. He then worked as the General Director of the Organization for the implementation of projects with the Italian oil and gas company Eni.
On October 15, the President of the Republic of Kazakhstan Nursultan Nazarbayev and the President of the Russian Federation Vladimir Putin signed the Protocol to amend the Protocol to the Agreement between the Republic of Kazakhstan and the Agreement between the Russian Federation and the Republic of Kazakhstan on the demarcation of the seabed in the northern part of the Caspian Sea for the purpose of exercising sovereign rights to use mineral resources dated July 6, 1998.
The signed document will allow the joint venture “Oil and Gas Company Central” LLC, created by authorized organizations of the parties - KazMunayGas National JSC on the part of the Republic of Kazakhstan and the joint venture Gazprom OJSC and Lukoil OJSC on the part of the Russian Federation - to get a subsoil license on the site within which the “Central” structure is located for geological study, exploration and production unauctioned and without holding of a tender for a period of 25 years with the geological survey period of 7 years and under a standard taxation scheme.
One oil field has received credit on the reduced rate of tax on natural resources production, the Press service of the Ministry of Energy of the Republic of Kazakhstan told KazTAG news agency. “Karazhanbas Deposit received credit on the reduced rate of tax on natural resources production”, was said in the body’s response to the request of the agency. The Vice Energy Minister Magzum Mirzagaliyev said earlier that 39 bids to obtain tax preferences for low-margin oil fields were submitted to the Ministry of National Economy of the Republic of Kazakhstan. Karazhanbas deposit oil is located on Buzachi peninsula in Mangistau region, approximately 200 km north of Aktau. Karazhanbas is the largest of the shallow heavy oil fields within the CIS. Currently, the mine is developed by “Karazhanbasmunai” JSC, whose shareholders are the Chinese company CITIC and Kazakhstan's Exploration and Production KazMunaiGas JSC.
On October 15, the Board of Directors of JSC KazTransOil decided to liquidate the Batumi Terminals Limited company (Republic of Cyprus). JSC KazTransOil owns 100% of shares of the Batumi Terminals Limited, through which the direct ownership and management of productive assets in Georgia-Batumi oil terminal and the exclusive right to manage the Batumi sea port has been implemented.
On October 16, a deal was closed between Samruk Kazyna JSC and KazMunayGas NC JSC which completed the acquisition of a 50% stake in “Kashagan B.V.” private limited company (subsidiary of KazMunayGas NC, one of the participants in the Kashagan field developement consortium) in favor of Samruk Kazyna JSC. The deal amounted to $ 4.7 billion. The press-service of Samruk Kazyna JSC noted that the payment for the purchased shares will be completed before the end of the year 2015.
On October 20, the Deputy Director of the “State Finance” group of the Standard & Poors (S&P) rating agency Karen Vartapetov said that S&P excluded the Kashagan oil project from the forecast considerations of the economic growth of Kazakhstan due to repeated postponing of bringing the giant field into service. The production at Kashagan was stopped in September last year, two weeks after the start, due to a gas leak. Another leak was discovered almost immediately after the resumption of production in October 2013. The analysis revealed numerous cracks in the pipeline which appeared as a result of the impact of highly sulfurous accompanying gas on the metal. In April 2014 the project operator, the North Caspian Operating Company (NCOC) consortium, confirmed the need for a full replacement of the gas and oil pipelines on the field which amounts to the total length of about 200 km. The Government is waiting for the resumption of production by the end of the 2016.
On 22 October, the first pilot batch of the modified bitumen, the quality of which complies with the requirements of the national standard of the Republic of Kazakhstan, was produced at the Aktau bitumen plant “CASPI BITUM”. “Today we have released the first pilot batch of resin-modified bitumen. The rated capacity of the polymer-modified bitumen unit is 120 thousand tons per year. This product is aimed at improving the quality of our motor roads," the first Deputy General Director of "CASPI BITUM” JV Daniyar Satybaldin said. “CASPI BITUM” plant is a joint venture of “KazMunayGas Refining and Marketing” JSC and “CITIC Kazakhstan” LLC created on a parity basis. Bitumen production plant was commissioned in December 2013. The oil from Karazhanbas field serves as the raw material for the production of bitumen.
On October 25, Tengizchevroil LLC announced the shipment of the last batch of sulphur previously stockpiled on the site. "For many years we have seen sulphur mountains at Tengiz. In 2006 its reserves on the outdoor storage pads exceeded 9 million tons, which was a cause of concern for the people of the region. It seemed for all of us that shipping all these reserves would be impossible. But thanks to the successfully implemented projects, as well as to coordinated work of Tengizchevroil and contractors, we have witnessed the shipment of the last tons off the sulphur pads", the Vice Energy Minister Uzakbai Karabalin said.
"I would like to mention the Marketing and Transportation Department, Production department of Tengizchevroil, as well as the contractors - “Ariadna” LLC and “Denholm Zholdas” LLC - who ensured the success of the project. Thanks to their work, Kazakhstan entered the top ten of the largest sulphur suppliers in the world," the CEO of Tengizchevroil Tim Miller said.
5 plants with a total capacity of sulphur granulation production over 6 thousand tons per day are currently operated at Tengiz field. They provide complete processing of sulphur obtained in the process of the production of oil, which contains 13% hydrogen sulphide.
Bloomberg announced the intention of the Government of Kazakhstan to fine the operating companies of Karachaganak oil field - the British BG Group and the Italian Eni SpA - for nearly $ 2 billion for failing to comply with the terms and conditions of the agreement. "The fine in Karachaganak project could reach $ 2 billion. That's roughly equal to a fine which the Government threatened to impose in 2010 because of a dispute about buying a 10 percent stake in the project. The possibility of a fine is being looked into because the companies failed to fullfil certain contractual obligations. The fine could herald the Government's intention to increase its stake in Karachaganak”, the publication said, referring to the sources familiar with the situation. Meanwhile, according to the analyst of the London’s Olivetree Financial Ltd Tebsa Taylor, “this is most likely a ploy to get more taxes or to improve the conditions of state control over the Karachaganak field”.
The deposit is being developed by an international consortium Karachaganak Petroleum Operating B.V., which consists of: BG Group (29.25%), Eni (29.25%), Chevron (18%), JSC Lukoil (13.5%) and JSC NC KazMunayGas (10%).
Theodore Etchison is to head Tengizchevroil LLP operating the Tengiz oil field in Western Kazakhstan. "The CEO Tim Miller is leaving his post in November. He is to be succeeded by Deputy Director Theodore Etchison, who is currently in charge of the production unit of the company. Tim Miller is not leaving Kazakhstan. He will continue to work for Chevron in Almaty,” the General Manager of Tengizchevroil’s Public and Government Affairs Department Rzabek Artygaliyev said.
November
On June 2, the oil fields operated by “Tandai Petroleum” company were included in the list of the low-margin, very heavy, flooded, low-debit and depleted fields by the Government decree No.877. This is the second company in Kazakhstan to be included in the list, allowing it to lower the rate of tax on natural resources production from 5% to 1.5%, after JSC
”Karazhanbasmunai” tax on natural resources production rate has been reduced from 9-10% to 0.5%. In accordance with the current Tax Code of the Republic of kazakhstan, tax on natural resources production rates on crude oil, including gas condensate ranges from 5% to 18% depending on the annual volume of production.
On November 4, “Kaztransgas” JSC announced the signing of the memorandum with the UK power stations operator Independent Power Corporation PLC (IPC) for construction of four gas turbine stations in Kazakhstan. The memorandum was signed by the heads of companies as a part of the official visit of the President of Kazakhstan Nursultan Nazarbayev in London, the press service said. “The document states that the British partners finance the construction of four gas-turbine power stations in Astana, Karaganda, Temirtau and Zhezkazgan, with a 400 mWn (megawatt nominal) output each. The planned investment amount is $ 3.1 billion.”
On November 5, “KazMunayGas – refining and marketing” JSC and the French company Air Liquide signed an agreement on establishing a joint venture for the production of technical gases. "The agreement provides for the outsourcing of existing hydrogen, nitrogen and other gases production units at the refineries in Atyrau, Pavlodar and Shymkent, the ownership and management of installations, as well as the outsourced construction of new technical gases production facilities," the company said.
“Mangistaumunaigas" JSC announced personnel changes in the company. It is known that the provisions of the shareholders agreement lay down the rotation of the right to appoint the top management and the heads of departments of “Mangistaumunaigas” JSC once in 3 years. Thus, Bakyt Imanbayev, who previously held the post of first Deputy General Director, was appointed the General Director of “Mangistaumunaigas” JSC. And Sun Hsing Yun - who served as General Director of "Mangistaumunaigas" JSC for the last three years - was appointed the first Deputy General Director.
The second stage of the Beineu-Bozoi-Shymkent pipeline was comissioned, the press-service of KazTransGas JSC reported. "The formal pipeline Beineu-Bozoi-Shymkent (BBS) comissioning ceremony took place on the Beineu-Bozoi stretch,” was noted in a statement. The pipeline goes through the territory of Mangistau, Aktobe, Kyzylorda and South-Kazakhstan oblasts. The total length of the pipeline is 1477 km, with the throughput up to 10 billion cubic meters of gas per year. Commissioning of the pipeline has allowed to combine all pipelines in Kazakhstan into a single gas transportation system: “Soyuz”, “Central Asia - Center”, “Bukhara-Ural”, “Bukhara Gas Region - Tashkent - Bishkek - Almaty”, “Gazli - Shymkent”, “Kazakhstan-China”. Construction of the pipeline began in December 2010 when the Kazakh and Chinese companies - KazTransGas and “Trans-Asia Gas Pipeline Cоmpany Limited-was created TOO” - established an equally owned joint venture “Beineu-Shymkent Gas Pipeline” LLP. At the end of 2013 the first stage of the pipeline was commissioned - the “Bozoi-Shymkent” stretch.
On November 18, during a government session the Chairman of the Board of Directors of Samruk Kazyna fund Umirzak Shukeyev stated that most of the companies of the “KazMunaiGas” group will be put up for privatisation. “Now we announce a new, even more ambitious major assets privatisation program. For example, a decision was made to keep only 75 companies out of 206 in KMG”, Shukeyev said. According to him, the Refining and Marketing branch, including all the refineries and the fuel station network, shall be privatised by selling 51% of KazMunayGas – refining and marketing. Among the facilities to be sold: not less than 51% of KMG International, including Rompetrol. "Only the pipeline and transport business shall remain in the midstream segment after the optimisation of KazTransOil. “Kazmortransflot” and Batumi terminal will shall also be privatised. "As to the upstream segment - the exploration and production - the packages in our key projects - TCO, Kashagan and Karachaganak - will be kept. The current level of control in own production assets - I mean Emba and Uzen - will also remain the property of KMG. On the contrary, we propose to consolidate this branch, to remove the excess links and prepare KMG for IPO by 2018, by the time we lauch the “Astana” international financial centre”, Shukeev stated.
Shareholders of the NCOC N.V. consortium -the North Caspian project operator - supported the candidacy of Bruno Jardin for the position of Managing Director. "Bruno Jardin has received the unanimous support of the shareholders of the Consortium for his appointment as the head of the North Caspian project operating company. Contractor companies believe that the ongoing works within the framework of the project are carried out in strict conformity with the plan, bringing a significant additional contribution to the development of Kazakhstan's economy. Mr. Bruno Žardèn, who is currently the Managing Director of Exxon Mobil Kazakhstan Inc. and Manager of the joint ventures in Kazakhstan, will begin to work as Managing Director of NCOC N.V. will begin in the coming weeks”, the press service of the Consortium said. He succeeded Stephane de Mahieu in this capacity.
December
On December 1, Kaztransgas JSC commissioned the line “C” of the Kazakhstan-China main gas pipeline. This event was the final stage in implementing the largest project in the energy area and regional partnerships. Project performance for all three lines-A, B and C of the Kazakhstan-China main gas pipeline will reach 55 billion cubic meters. Kazakhstan-China main pipeline is an integral part of a cross-border gas pipeline Turkmenistan-Uzbekistan-Kazakhstan-China, with a total length, exceeding 7.5 thousand km. The line length is 1303 km.
President Nursultan Nazarbayev, in the Message to the People of Kazakhstan stated that Kazakhstan will overcome the difficulties in the economy even at the oil price, equal to 20 dollars per barrel. "Compared with the previous periods, we now have accumulated the necessary reserves and the State Fund. The options were elaborated and well-considered according my instructions, as I said before, for the case of lower oil prices - 30 and 20 USD per barrel. Of course, it will not be easy, all we will need to figure out if it happens. But we all get together and overcome it, - Nazarbayev said.
On December 3, the national company KazMunayGas reported on selecting a partner for pre-export financing of future oil supplies. "KazMunayGas national company JSC (hereinafter referred to as KMG) initiated the collection of proposals from relevant international traders on the advancing of oil per 20% share of KMG in Tengizchevroil LLP (hereinafter the TCO), including an advance payment of up to 3 0000 0000 0000 USD. In September 2008 it was decided that subsidiary of KMG-KazMunayGas Trading AG (hereinafter - KMGT), shall act as the KMG agent will in this matter and it shall implement the appropriate interventions at the choice of international trader (preparation of tender procedures, selection of participants, the formation of evaluation criteria, organization of the tender commission meetings). On November 30, 2015, the tender committee (consisting of representatives of JSC National Welfare Fund Samruk-Kazyna, KMG and KMGT) chose the final winner - VITOL S.A. This project has high importance to KMG, which is shared with KMGT, VITOL S.A. and TCO soon will work on forming the relevant documentation for the transaction. It is expected that the first tranche of the advance will be held during 2-4 months", - stipulates the statement of the National Company. Earlier in September, the Deputy Chairman of KazMunayGas Daniyar Berlibaev said that the term contracts will be up to three years.
The Exploration& Production KazMunayGas announced the changes in the composition of the Board of Directors. New members of the Board of Directors of KMG EPwere elected at the extraordinary general meeting of shareholders. Igor Goncharov - Operations Managing Director - Chief Engineer of the KMG and Kurmangazy Iskaziyev - CEO (Chief Executive Officer) of KMG EP Board of Directors, instead of recently resigned Kurtwood Hillman and Abat Nurseitov.
On December 8, Yerbolat Dossayev, Minister of National Economy, said at the Government Meeting that the joint proposals of the Ministry of National Economy and the Ministry of Energy on binding the export customs duties (ETP) of crude oil to the global prices will be presented before the end of the year. "We have already prepared with the Ministry of Energy the agreed proposals, based on the binding of the export customs duties (for the crude oil-KazTAG) to the global price and the fact that the budget of the Republican budget is formed for the next 3 years. Of them for 2 years we assumed the oil price at 40 dollars per barrel, we will excalate the draft to the meeting of the Government until the yearend," - said Mr. Dossayev.
On December 8, Yerbolat Dossayev, the Minister of National Economy, said at a Government meeting that the commercial extraction of oil at the Kashagan field offshore will resume in December 2016. "If we talk about the main industries, next year we will continue implementation of the major projects in the oil and gas sector. In December 2016, it is planned to start the commercial production at Kashagan field," - said Mr. Dossayev.