PetroKazakhstan: Transforming Subsoil Energy
Terrance J. Powell, Director, Government relations and Public Affairs of PetroKazakhstan, answers the questions by our maganize
Could you please tell about the main stages of PetroKazakhstan development? What were the investment volumes of PetroKazakhstan for the time of its operation in Kazakhstan?
PetroKazakhstan has been operating in Kazakhstan for 7 years, and we are proud of our success. For the time of operations in the Republic, PetroKazakhstan has grown from a small, not very well known company into one of the largest producers, accounting for about 15% of the total volume of oil produced in the country, and into the biggest refiner in Kazakhstan.
The Company was originally incorporated and registered in Calgary, Canada in 1986 as Hurricane Hydrocarbons Ltd., and was operating in western Canada. In 1991, the Company came to Kazakhstan and in 1996 acquired Yuzhneftegas, the owner and operator of the Kumkol fields. Along with the acquisition of Yuzhneftegas, the Company purchased a 50% interest in two joint ventures – Kazgermunai and Turgai Petroleum. In March 2000, Hurricane Hydrocarbons Ltd, acquired 88% of the shares of OJSC Shymkentnefteorgsyntez (ShNOS). With the acquisition of the Shymkent refinery Hurricane became the first vertically integrated foreign owned oil company in Kazakhstan.
Today PetroKazakhstan is one of the largest investors in the Republic of Kazakhstan. For the seven years of operations in the Republic of Kazakhstan, PetroKazakhstan invested $644 million and has exceeded its original investment commitment. Our more recent major investment projects include the construction of the KAM – Dzhusaly pipeline, the Gas Utilization Plant, the Vacuum Distillation Unit and the refinery Boiler.
What are the recent main production indexes of PetroKazakhstan Kumkol Resources?
As I mentioned above, the Company has achieved significant production growth. Producing 16.6 million barrels of oil in 1997, PetroKazakhstan increased its production to 55.2 million barrels in 2003. Annual increase over that period was approximately 23%. Average daily oil production increased by 11.4% to 151,349 bopd in 2003 from 135,842 bopd in 2002. PetroKazakhstan has forecast for 2004 production in a range of 160,000 bopd to 165,000 bopd.
What place does exploration and development of new oilfields take in the Company’s strategy?
PetroKazakhstan pays special attention to implementation of its exploration program. Currently, all of the company’s exploration and production operations are located in the 80,000 km2 South Turgai Basin in south central Kazakhstan. PetroKazakhstan has interests in 11 fields, 7 of which are producing, 3 of which are on test production for appraisal and 1 field is awaiting finalization of its production license. PetroKazakhstan holds working interests in three exploration licenses covering a total of 6,171 km2.
Our Company is the only major company in South Turgai Basin that maintains such an extensive exploration program. Efforts by our specialists lead to the recent discovery of two new oilfields – East Kumkol (in 2001) and North Nuraly (in 2002). In addition to acquiring new exploration licenses and increasing its exploration activity, PetroKazakhstan is looking at potential acquisitions of existing reserves.
Taking into account that PetroKazakhstan is a vertically integrated company, operating under the principle “from the well head to the station”, what measures are taken for development of transportation infrastructure?
PetroKazakhstan oilfields are located in the south-center of Kazakhstan, far away from republic’s pipeline network. Traditionally, oil from PetroKazakhstan’s fields was transported to the Shymkent Refinery via the Karakoin pipeline. The portion of oil bound for export was then shipped in rail cars through the Tekesu terminal in an opposite direction to the north – west to the Dzhusaly station and further to western markets. Consequently, the development of transportation infrastructure and a decrease in transportation costs was a Company’s priority. The first major step taken to significantly decrease transportation costs and develop transportation infrastructure was the construction of the KAM – Dzhusaly pipeline. This 16-inch 177-km pipeline connected Kumkol, the KAM group of fields (Kyzylkiya, Aryskum, Maibulak) with a new rail terminal at the Dzhusaly station. The pipeline helped to cut the Company’s transportation distance to western export markets by 1,300 km. The pipeline and terminal were commissioned in June 2003, and in the second quarter of 2004 the volumes shipped by these facilities accounted for 78% of all Company shipments during that period.
The Company also pays significant attention to development of new export routes. In 2003, the Company opened several new routes, including a swap contract with Iran in December 2003. Last year PetroKazakhstan also started direct crude shipments to the Fergana refinery in the Republic of Uzbekistan. In May 2003, PetroKazakhstan commenced shipments of crude oil to China through a new export route, from the Atasu terminal, which helped to cut the railway transportation distance to the Chinese border by approximately 435 km as compared to the previous transportation route via the Tekesu rail terminal at Shymkent.
It is not a secret that production and development of hydrocarbons has negative impact on the environment. What is the environment policy of PetroKazakhstan?
Environment protection is one of the top priorities in the Company activities. PetroKazakhstan’s mission emphasizes – “the Company’s goal is to create superior value for its shareholders and the Republic of Kazakhstan while protecting the health and safety of its people and the environment.”
Effective environmental protection programs are regularly adopted and implemented at all of PetroKazakhstan’s facilities in Kazakhstan. The Company annually allocates significant budget funds for the introduction of environmentally friendly technologies and up-to-date equipment. As an example, in 2003 and 2004, PetroKazakhstan Kumkol Resources and its affiliates committed $88 million to three gas utilisation projects in the Kyzylorda Oblast. One of these projects was the construction of a 55-megawatt Gas Utilization Plant (GUP). Built by the initiative and under the management of PetroKazakhstan Kumkol Resources, the GUP utilizes associated gas produced from the Kumkol fields in three turbines to produce stable electricity for field use. Commissioned at the end of March 2004, the GUP can utilize as much as 177 million cubic meters of associated gas annually. The operation of the plant significantly reduces direct and indirect emissions into the atmosphere of the South-Turgai basin and Kyzylorda region.
The second project is participation in the gasification of Kyzylorda city. The gasification project includes the installation of gas fired power generation and heating plants as well as the provision of gas to local dwellings. PetroKazakhstan is donating $12 million for implementation of this project. The project is being built by the local administration with matching funds being supplied by the Government of Kazakhstan. Converting the city to gas from burning coal and mazut will notably improve the air quality in the city and region.
The third project is the construction of a gas processing plant at the Akshabulak field. The planned facility will annually process 300 million cubic meters of wet gas and produce 90,000 tonnes of valuable liquefied petroleum gas and 22,000 tonnes of condensate. Processed gas will be delivered to the city of Kyzylorda via a pipeline that is being built by KazTransGas.
PetroKazakhstan is an initiator of a number of major social projects. Could you please tell more about the most interesting of them.
PetroKazakhstan continues to be a major contributor to social and charitable organizations in Kazakhstan. During the course of its operations in the Republic of Kazakhstan, the Company has donated more than $38 million to sponsorships and charitable activities in the Republic.
Recently, the Company played a key role in the establishment of the Demeu Social Fund. It was established by AO PetroKazakhstan Kumkol Resources in conjunction with the Akimat of the Kyzylorda Oblast in July 2004. The Demeu Social Fund is intended to act as a non-profit central point of funding for socially significant and useful projects through the combining of funds provided by various oil and gas companies operating in the Kyzylorda Oblast. PetroKazakhstan has committed to providing a lump sum contribution of $1 million as its initial contribution to the Fund for the balance of this year.
PetroKazakhstan: Transforming Subsoil Energy Terrance J. Powell
Legal Environment for Service Companies Saule Akhmetova
DRESSTA in Kazakhstan: proved over time! Wieslaw Jakobik
Black Gold of Bogatyr Dennis Price
The Kazakh Upstream Tax Regime: Comparative Analysis Gerard Anderson
A Public Shell, or How to Enter the US Stock Market Oleg Batratchenko