KashaganandTengiz—CastorandPollux DanielJohnstonandDavidJohnston AdaptedfromPetroMinMagazine–15December,2001. The recently announced super giant Kashagan discovery in the Kazakhstan sector of the NorthCaspianSeaistheworld’slargestdiscovery in three decades. Kashagan, located in shallowwater,isananalogtotheonshoreTengizfieldlocatedapproximately130to150km (85miles)tothesoutheast. KashaganandTengizarethetwolargestfieldsinKazakhstan—theiroilreservesalonerival theUnitedStates22Billionbarrelsofoil,yettheyhavehardlybeguntoproduce.Tengizin 10yearsofproductionhasproducedlessthan10%ofit’srecoverablereserves.Andwhile Kashaganwasonlyjustdiscovered,thereareothersimilarstructuresintheKashaganlicense areathatareyetundrilled.Overall,thedevelopmentcostswilllikelycosttensofbillionsof dollars but revenues to the Contractor group (the oil companies) and the Kazakhstan Governmentcouldexceed onetrilliondollars . TheKashaganprospect,(Figure1)namedafterthegreatKazakhpoet,wasidentifiedbythe Soviets in the early 1970s. However, the extremely promising prospect, located in an environmentallysensitiveandhighcostenvironment,wasnotdrilledatthattime. Threewellshavebeendrilledonthestructuresincelate2000andtheprospecthaslivedupto it’spromise.Appropriately,theKashaganproduction sharingagreement (PSA) is about as 1 famousasthediscovery. Every single percentage point (1%) take (either Government or Contractor take) could representfrom$1.5to$2billioninprofitsforthefirst10billionbarrelsalone.Thisisabig one. Thediscoveryisratedat6.4to100billionbarrels. 2However,itislikelythatagoodworking range might be somewhere on the order of 6.4 to 20 billion barrels of recoverable oil reserves—onlythreewellshavebeendrilled.At20Billionbarrels(ifthatisultimatelythe figure)Kashaganwouldbethe5 th largestoilfieldintheworldandtheonlyoneofthefive outsidetheArabian/PersianGulfregion. ThediscoverywellKashaganEast-1(KE-1),47milessoutheastofAtyrauin10feetofwater, encounteredPaleozoiccarbonatesbelow13,000feet(3,960m)andtested3,700BOPDand7 MMCFD on a half-inch choke 3. In May, 2001 ExxonMobil announced test rates on the KashaganWest-1(KW-1)welllocated40-48kmaway(dependingonthesource)fromthe Kashagan East discovery well. The KW-1 test was also from Paleozoic Carbonates (limestone)below 13,800ft(4,250 m) describedas a Carboniferous-Devonian coral atoll. KashaganandTengiz–CastorandPollux1 DanielJohnston&Co.,Inc. Thewellflowed3,300BOPDoflight42-45ºAPIgravitycrudeand7.5MMCFDonahalf- inch choke.4October,2001AGIPannouncedatestrateof7,400BOPDfromtheKashagan East-2 well drilled 8 km away from the discovery well. 5 The results of the 3 wells are summarizedinTable1. Thesearenotbadtestratesbuttheyarenotspectacularbyworldstandards.Ofthenearly100 odddiscoveriesreportedworldwideeachyeartheaveragetestrateisaround5,000BOPD. Theaverageratefortheupper25 th percentileis10,000BOPDwhichisthekindofratethat mightbeexpectedforagiantdiscoverylikeKashagan.However,indicationsarethattesting hasbeenlimitedbytechnicalandenvironmentalconditionsandregulations. AccordingtoAgip-ENI(theoperator)thesecondwellencounteredthesamereservoirrocks astheKashaganEast-1discoverywell.Theyestimatedeliverabilityforthewellat5,000- 20,000 BOPD. 6Thissoundsreasonableifthefieldisasbigasexpected.This partofthe worldisfamousfor“hype”butallindicationsarethisisasubstantialdiscovery. Table1 KashaganDrillingSummary Water Drilling WellTestRates Depth Depth Operator Comments Well BOPD MMCFD (feet) (feet) CompletedAugust,2000 KE-1 OKIOC 3,700 7 10 13,000+ 42-44ºAPI 1,900cubicfeetperbarrel Completedearly2001 OKIOC 25milesWestofKE-1 KW-1 3,400 7.6 22 13,800+ 42-45ºAPI 2,200cubicfeetperbarrel KE-2 SpuddedApril,2001 AgipKCO 7,400 - - - 5milesNorthofKE-1 ResultsannouncedOct.,2001 From: PhillipsPetroleumCompany2001FactBook,page27;OKIOCwebsiteOct.23,2001; Agip-ENIannouncement22October,2001SanDonatoMilanese KashaganandTengiz–CastorandPollux2 DanielJohnston&Co.,Inc. CPC BTC Atyrau 47 °°°00'N Kashagan East Kairan Kashagan West North Tengiz Caspian 46 °°°00'N Kashagan Aktote S.West KalamkasA 52 °°°00'E 53 °°°00'E 45 °°°00'N Kazakhstan 50 °°°00'E 51 °°°00'E Prospect LicenseArea KashaganAreaMap Welllocations(approximate) From:KashaganPSA [pg167] CaspianPipelineConsortium(CPC) Baku-Tbilisi-Ceyhan(BTC) (Proposed) Figure1 KashaganandTengiz–CastorandPollux3 DanielJohnston&Co.,Inc. Tengiz Tengiz is the Kashagan twin. They have the same reservoir rocks with similar fluid properties,pressuregradients,reservoirdepthsandsulfurcontent(SeeTable2).Recoverable reservesareratedat6to9Billionbarrelsoflightoil(outof24Billionbarrelsin-place)with associatedgasreservesof64TCF 7. Tengizmeans“sea”intheKazakhlanguagewhichcarrieswithitabitofironybecausethe fieldisbothanonshorefieldandforallpractical(marketing)purposesitislandlocked.Itwas discovered in 1979 and began producing in 1991. In April, 1993 shortly after the Tengiz contractwassigned,thefieldwasproducing24,000BOPDfrom27soviet-erawells. TheTengizcrudehasaspecificgravityof0.787gramspercubiccentimeter–48.2 °APIwith 0.49%byweight(wt%)sulfurandalsohasabundantsolidbitumen.Theassociatedgashas 7 12.5mol%hydrogensulfide(H 2S). ProductioncostsforTengizarereportedataround$3/BBL.Thisisnotcheap,especiallyfora giant oil field. World average production costs for smaller fieldsare $3.50to $4.50/BBL. There is economy-of-scale with the giant Tengiz field, but the harsh technical difficulties neutralizesomeofthat. Asrecentlyas1999,2/3 rds oftheTengizproductionwentoutbyrail—around160,000outof 250,000BOPD.TheCaspianPipelineConsortium(CPC)leased10,000tankcarssendingup to6trainsperdaytoRussianportsontheBlackSea.Thisisoneofthemostexpensivemeans oftransportation.TransportingoiltotheBlackseacostsaround$6/BBLwithsomuchofthe productiongoingbyrail.TransportationcostontheCPCpipelinefromTengiztotheRussian BlackSeaportofNovorossiskwhichstartedupinAugust,2001isestimatedat$3/BBL.The $2.6Billion,950mileCPClinehasaninitialcapacityof560,000BOPD.Ultimatecapacity forthislineis1.5MMBOPD.Kashagancrudewillhavetofinditsownwayout. Butthereismovementonthatfront.WhileChevronTexacoisnegotiatingwithSOCARthe Azerbaijannationaloilcompanytopurchaseashareinthe$2.4billionBaku-Tbilishi-Ceyhan (BTC) pipeline project, Agip-ENI has already purchased a 5% share. 8 This project now seems to be a certainty with strong pressure from the U.S. Government and the kind of deliverabilityexpectedfromKashagan.Itisaquestionoftimebutthepressureisintensenow withtheKashagandiscovery. ClimateandInfrastructure Thislandlockedregionischaracterizedbyextremeweatherwithsummerhightemperatures ontheorderof44ºC(110ºF)andwinterlowsof-40ºC(-40ºF).Itisthesamelatitudeas Billings,Montanabut100feetbelowsealevel.Iceproblemsareexpectedinwinterbutyear- round-drilling is planned. Infrastructure in this remote part of the world is weak for the world-class development contemplated for Kashagan even with Tengiz nearby. However, withreserveslikethese,evenalargeworld-classpipelineliketheBTCprojectat$2.4Billion (capitalcosts)becomesfeasible.With10billionbarrelsofoilthisamountstoonlyaround 24¢/BBL. KashaganandTengiz–CastorandPollux4 DanielJohnston&Co.,Inc. ReservoirDepthsandPressures The depth of the reservoir rocks ranges from 13,000 feet to over 15,000 feet. This is not terriblydeepbyworldstandardsbutthecostofa15,000footwellcaneasilybedoublethat ofa10,000footwell.Thatextramilemakesabigdifference.Butwhatmakesanevengreater differenceisthereservoirpressure.PressuresthroughouttheCaspianregionarenearlytwice that of normal hydrostatic pressure and sometimes more. Tengiz is famous for it’s high temperature and pressure. Temperatures are nearly 200 ° F and pressures are among the highestintheworldat0.82poundspersquareinchperfoot(PSI/ft)ormore—almosttwice normalhydrostaticpressureof0.433to0.465PSI/ft. Apressuregradientlikethiscaneasilyaddover$10MMperwellfordrillingfluids(mud) alone.Andwiththekindofmudweightsrequired(over16poundspergallon)drillingcango slow.ThereportedcostforthefirsttwoKashaganwellsisUS$100MMnotincludingthe cost of the initial 110,000 square kilometer 3-D seismic data acquisition program that precededdrilling.Thisdoesnotsoundunreasonable.Hightemperaturesandpressures,sour (hydrogen sulfide bearing) gas, high gas oil ratios (GOR), and poor infrastructure in a hostile—environmentally sensitive region all add up. But it will take hundreds of wells to developKashaganandthesedevelopmentwellswillnotcostthatmuch. ProductiveArea Whiletherearenumerousreported sizes forthetwofields,agoodworkingnumberforthe Kashaganfieldisprobably320,000acres(basedon numerousreported figures). There are manyexplorationblocks/licensesinthisworldthat are smaller. Tengiz is about a third as large. Alaska’s Prudhoe Bay field productive area is roughly 150,000 acres. In the environmentallysensitiveCaspian,dealingwithsuchalargestructureisexpectedtobeabit ofaproblem—ittakesalotofwellstocoverthatkindofarea. KashaganandTengiz–CastorandPollux5 DanielJohnston&Co.,Inc. Table2 Kashagan–TengizVitalStatistics Kashagan Tengiz Discovered July,2000 1979 Start-up N/A 1991 RecoverableReserves (BillionsofBarrels) 6.4–20 (ormore?) 6–9 Offshore Location Onshore 10-22feetofwater Size (acres) 320,000 100,000 (Potentialproductivearea) Roughly14,000orso Reservoir Depth (feet) 13-14,000 Exactfigurenotavailable CrudeCharacteristics 42-45 °APIGravity 48.2 °APIGravity 18-20mol%H 2S 12.5mol%H 2S PressureGradient Assumedtoberoughlythe Veryhigh,approximately sameasTengiz–veryhigh 0.82psi/ft+ GasOilRatio 1,900-2,200 High (cubicfeetperbarrel) fromKE-1&KW-1tests Exactfigurenotavailable