Karachaganak’s Day Has Come
Boris Zilbermints, Regional Director of LUKOIL Overseas Service Ltd. in Kazakhstan
LUKOIL views Kazakhstan as a strategic region of activity, as the country possesses immense mineral resources and is advancing steadily towards a leading position in the world in terms of hydrocarbon production rates. In addition, Kazakhstan has relatively favourable and stable tax laws. The Kazakhstan’s credit rating is the same as its investment rating and is actually somewhat higher than those of Egypt, India and the Baltic countries.
Kazakhstan is taking advantage of its proximity to Russia and the integration of the two economies; but, most importantly, the two nations share a common history and cultural heritage. All other things being equal, the Kazakhs would feel much more comfortable working with a large Russian oil company than with a partner from elsewhere.
Kazakhstan occupies a special place in LUKOIL’s expansion plans. The company is now planning to increase the output of its overseas assets to 20 million tonnes of oil by 2010; with half of this volume to be produced in Kazakhstan.
In recent years, LUKOIL has allocated $200-250 million annually for its Kazakh projects, and has invested a total of $1.5 billion in Kazakhstan during the six years of its presence in the country.
We believe that long-term co-operation with Kazakhstan will be fruitful for us, and we can view the future with confidence.
The Karachaganak oil and gas condensate deposit is one of LUKOIL Overseas’ priorities. The deposit was explored in 1979; with an area of 450 sq. km and geological reserves of about 1.2 billion tonnes of liquid hydrocarbons and 1.3 trillion cubic metres of natural gas, it falls into the category of giant fields. In 1997, it came under the development of Karachaganak Petroleum Operating B.V. (KPO), an international consortium, in which LUKOIL holds a 15% interest through LUKOIL Overseas. The Production Sharing Agreement (PSA) for the project was signed for 40 years. The other stakeholders are BG Group, EniAgip, ChevronTexaco and the National Company KazMunaiGaz, the latter representing the Kazakh Government.
On 1 August 2003, an inauguration ceremony was held in Aksai, West Kazakhstan, for the Karachaganak Processing Complex (KPC) and for a pipeline to transport liquid hydrocarbons from Karachaganak to Atyrau and then to the Caspian Pipeline Consortium (CPC) export facility. This event marked the successful completion of Phase 2 of the Karachaganak development programme.
The ceremony was attended by Kazakh President Nursultan Nazarbayev and other important guests, including several members of the government, Krymbek Kusherbayev, Akim (Governor) of West Kazakhstan, and the senior management of KazMunaiGaz and the four founding companies.
The LUKOIL group was represented by Jevan Cheloyants, Vice President of LUKOIL, Andrei Kuzyaev, President of LUKOIL Overseas, and Boris Zilbermints, Regional Director for Kazakhstan.
The celebration was hosted by KPC, the largest facility at Karachaganak, responsible for stabilising gas condensate and treating it to export standards.
The occasion was also used to announce the launch of the unique UKPG2 plant for injecting sulphur dioxide into the reservoir. The main items of equipment at KPC are drips for separating oil and compressors, which, according to experts, exemplify the most advanced technology in the oil and gas industry.
Injection of sulphur dioxide into the reservoir under high pressure (over 500 atmospheres) is being applied for the first time ever. This method provides a solution to the problems of gas utilization and atmospheric pollution. In addition, increasing the reservoir pressure is an efficient method for improving reserve recovery.
Apart from building new facilities for the treatment of gas and liquid hydrocarbons and injection of gas into the reservoir, a number of other important measures were implemented during Phase 2. These included modernisation of old Soviet-era assets inherited from the former operator Gazprom, major repairs to more than 100 wells, and the construction of a gas-turbine power plant (120 MW) along with various items of service infrastructure such as a 35-km railway line from the site to Aksai.
Finally, a 635-km export pipeline was laid, connected with the CPC system at Atyrau, allowing oil to be transported from Karachaganak to the port of Novorossiysk on the Black Sea. The cost of building the Karachaganak-Chagan-Atyrau pipeline was $700 million.
Karachaganak is an example of world-class quality and high professionalism. At the beginning of the project’s building programme, about 20,000 employees were employed, 80% of which were Kazakh nationals. More than 500 Kazakh companies were awarded contracts for the provision of products and services. The programme designed for the employment of local specialists under the project is expected to provide Kazakhstan with thousands of oil and gas industry specialists, constructors and managers trained to international standards.
During the same period, KPC also has improved performance in the field of environmental protection and fulfilled social obligations, including long-term investments of $10 million per annum. Since the PSA for Karachaganak was signed for 40 years, these investments in the social sector of West Kazakhstan total $400 million.
In 2002, the existing Karachaganak facilities set a new output record: 5.2 million tonnes of condensate and 4.7 billion cubic metres of gas. In 2003, this amazing performance will be improved even further, to 7 million tonnes and 7 billion cubic metres, respectively. Before the launch of the new facilities, all the output was transported to a gas-processing plant located in Orenburg, Russia, as owned by Gazprom. Now that KPC and the pipeline are operational, the project has access to international hydrocarbons markets, and it is expected that the annual production of liquid hydrocarbons and gas will be boosted to 10 million tonnes and 12 billion cubic metres of gas respectively in 2004.
During his address at the ceremony, President Nazarbayev thanked the thousands of workers and specialists, whose efforts and commitment made possible the successful launch of the most important oil and gas enterprise in Kazakhstan. He also thanked the investors who had allocated over $4 billion for Phase 2 of the project, and noted the active involvement of Kazakh companies in the project.
Then the president turned the valve to start the flow of liquid hydrocarbons through the CPC pipeline. A memorial plate was installed near the office building of KPC with the inscription: “The Karachaganak Processing Complex was opened by Nursultan Nazarbayev, President of the Republic of Kazakhstan, on 1 August 2003”.
At a press conference that followed the ceremony, the president said that implementation of the Karachaganak project provided an impetus for the economy of West Kazakhstan.
Thanks to Karachaganak and all the participants in this huge project, LUKOIL among them, dozens of new plants have been launched in Kazakhstan, the country’s small and medium-sized businesses have gained opportunities for development, and the national budget has started to receive revenue that will subsidise the social and agricultural sectors. All this led the president to conclude that, “gaining independence has made it possible for the Republic to find new friends: the investors who undertook to bring the Karachaganak deposit on stream, those who have fulfilled their commitment!”
First Hand Accounts from Karachaganak
John Morrow, General Director of Karachaganak Petroleum Operating B.V.:
We promised to build a new production structure in 1997 when our partners in KPO signed the main document on production sharing with the Kazakhstan government. We have fulfilled the terms of that agreement. This success is the product of efficient joint operations by KPO and its contractors, as well as close and effective co-operation between the investors, the National Company KazMunaiGaz and the government of West Kazakhstan Oblast.
Askar Nurgaliyev, Deputy Akim of West Kazakhstan Oblast:
It is crucial to us that this project is a success and is now reducing costs and improving performance. This has resulted in a wider tax base and greater revenue to the Oblast budget. In addition, West Kazakhstan is a contributor to the national budget, and, as such, is contributes to the development of the country as a whole.
Akim Krymbek Kusherbayev is a member of the Joint Managing Committee of Karachaganak. For this reason, the project makes important contributions to the social sector; for example, the city of Uralsk, the Oblast's capital, has been completely transformed over the recent years: the beautiful new buildings of the Kazakhstan drama theatre (opened by President Nazarbayev) and the Sport Palace have been constructed, the Atoyan stadium has been reconstructed, and much has been done in the area of infrastructure, such as road repairs, buildings, and area development.
The list of achievements is too long to be cited in full, and I hope that the social commitment of Karachaganak stakeholders will become even stronger in the future.
Dmitry Romanov, Russian Consul in West Kazakhstan:
We are paying close attention to the implementation of the Karachaganak project and are pleased to know that the Russian company LUKOIL is a successful contributor to it.
I believe that Russian businesses should expand their presence in Kazakhstan, because the conditions for doing so are very favourable, particularly the very friendly attitude of the local people towards Russia, the Russians and Russian companies.
Andrei Kuzyaev, President of LUKOIL Overseas:
Karachaganak has seen plenty of hard work, but more lies ahead. Today, we are facing the urgent tasks of improving the efficiency of selling liquid hydrocarbons and utilising the gas produced at the site. You may be aware that LUKOIL (including LUKOIL Overseas) is seeking to strengthen the gas component of its business, and is ready to play an active part in solving this issue .
Zhakyp Marabayev, Managing Director for Investment Projects and Interest in Joint Ventures at KazMunaiGaz, Chairman of the Joint Managing Committee of Karachaganak:
Of course, we all feel happy at a time like this. We’ve done a great job, and the president’s recognition of our success has motivated us to try even harder at Karachaganak.
Without in any way diminishing the contribution of the other partners, I would especially like to emphasise that of LUKOIL, the largest Russian investor in Kazakhstan. It has been a pleasure to work with LUKOIL, not only due to their professionalism, transparency and economic potential, but also because we share a common attitude. We once attended the same universities (for instance, I am a graduate of the famous [Russian University of Oil and Gas] Gubkin “Kerosinka” [kerosene lamp]), or were colleagues at the former Soviet oil and gas ministries, so we don’t need to say very much in order to understand each other.
Kuat Dombai, Public Relations Manager for Karachaganak Petroleum Operating B.V.:
In the run up to the inauguration ceremony, we literally had no time to rest, working 16 hours a day, seven days a week. But the event has made it all worthwhile. The president’s visit shows the highest approval of our joint efforts. People remember events like this for their entire lives.
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