Kashagan Project Produces First Oil After 8 Years of Delays

Kashagan, the world’s biggest crude discovery in the last 40 years, produced its first oil after eight years of delays and costs that reached $48 billion, more than double early estimates.

The start of output means the Caspian Sea project has narrowly beaten an Oct. 1 deadline that Kazakh Energy Minister Sauat Mynbayev set in 2008, saying the partners risked losing “tens of billions of dollars” in compensation for costs if they missed it. Hans Wenck, a spokesman for operator North Caspian Operating Co. in the capital Astana, confirmed the deadline while declining to elaborate on potential consequences.

Kashagan, slated to produce as much as 370,000 barrels a day during its first phase, has been pushed back multiple times from the original start date in 2005. Expenses mounted as the operators undertook drilling from a man-made island to unlock crude 4,200 meters (2.6 miles) under the seabed in a pressurized reservoir with a high concentration of lethal sour gas.

“Future development projects bear the potential to significantly increase production volumes and position Kashagan as an important contributor to the world energy market,” NCOC said in an e-mailed statement today. NCOC didn’t say how much is being pumped from the field, which has 35 billion barrels in place.

Exxon Mobil Corp. (XOM), Royal Dutch Shell Plc (RDSA), Total SA (FP) and Eni SpA (ENI) each holds 16.81 percent in the project. Japan’s Inpex Corp. (1605) owns 7.56 percent. State-owned KazMunaiGaz National Co. retains 16.88 percent.

China National Petroleum Corp. this month bought an 8.33 percent holding from KazMunaiGaz. Kazakhstan had earlier exercised a preemptive right to buy out ConocoPhillips (COP)’ 8.4 percent share to block a sale to India’s Oil & Natural Gas Corp.

To contact the reporters on this story: Nariman Gizitdinov in Almaty at ngizitdinov@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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