Kazakhstan’s Oil and Gas Sector in 1996–2010: Reserves, Production and Investment
The results achieved by Kazakhstan in the last 15 years in the area of development of oilfields and gas and gas condensate deposits laid the foundation for the successful development of the oil and gas sector. Along with that, considerable reserves of hydrocarbons in the subsurface of the republic, coupled with the imbalance in the external markets between the suppliers and consumers of energy resources are evidence that this industry will continue to remain a pillar of the national economy.
From 1996–2010 the increase in Kazakhstan’s reserves was some 2 billion tons of crude oil, 130 bcm of natural gas and 170 million tons of gas condensate. During this period, more than 700 million tons of crude oil, 270 bcm of natural gas, and 54 million tons of gas condensate were produced (Charts 1 and 2). Thus, the increase in crude oil reserves today outstrips their production by almost three times, an amount sufficient to provide the sector with raw material for the next 70–75 years in average.
At the moment, large foreign companies, representing more than 45 countries around the world, including the U.S.A, UK, France, Italy, Switzerland, Germany, Russia, Japan, China, Indonesia, and others, are investing in the hydrocarbons production sector in Kazakhstan. In aggregate, $113.2 billion was invested in Kazakhstan’s oil and gas production sector, including $13.2 billion in geological exploration. During this period, the investments rose by 8 times. It is worthy of noting that if 15 years ago the share of investment in hydrocarbons production in the total investment in the mineral industry was 53%, now it has already reached 75 % (Chart 3).
The investment activity of the hydrocarbons producers has a positive effect on the socio-economic development of the country. Over the past 15 years, they invested nearly $2 billion in social welfare of the regions and in local infrastructure, and more than $700 million in training of local personnel. With this, the number of the personnel involved in working at the contract facilities increased from 30 thousand to 54 thousand people (Chart 4.) In general, from 1996–2010 the total amount of taxes and payments paid by the mineral producers to the state budget reached $ 67.6 billion, including $18 billion as taxes on the actual volume of extracted hydrocarbons.
Such companies as NCOC, Uzenmunaigas Production Branch of KMG Production & Exploration, KPO (Karachaganak Petroleum Operating B.V.), Mangystaumunaigas, CNPC-Aktobe, Embamunaigas Production Branch of KMG Production & Exploration, Tengizchevroil, Turgay-Petroleum, and Kazgermunai demonstrate the greatest investment activity. The share of participation by these mineral producers in Kazakhstan’s hydrocarbon deposits development today is about 80 % in average.
As of January 1, 2011, the state balance of reserves takes into account the reserves of 256 hydrocarbon deposits, including 236 oilfields, 64 gas condensate deposits and 213 natural gas deposits. In terms of proven reserves of hydrocarbons, Kazakhstan is among the top ten countries in the world. The country's share in world's proven hydrocarbon reserves is more than 3 % for crude oil (about 5 billion tons) and 1.5 % for natural gas (about 2 trillion cubic meters). The probable reserves reach 17 billion tons for crude oil (8 % of the world's total) and 146.4 trillion cubic meters for natural gas (3.4 %). At the moment, 161 companies engage in hydrocarbon production at 263 sites. Of them, exploration is in progress at 67 sites, production at 84 sites and combined exploration and production at 112 sites.
The major oilfields and gas deposits are located in Western Kazakhstan and are confined to near the edge zone of the Caspian depression, to the South Emba and North Buzachi highs, North Ustyurt system of troughs and South Mangyshlak trough, and the continental shelf of the Kazakhstan Caspian Sea sector.
The greater part of the crude oil reserves (including C2) is under development by the large hydrocarbon producers, including NCOC developing Kashagan (43 %), Tengizchevroil (26 %), Mangystaumunaigas (4 %), KPO (3 %), CNPC-Aktobemunaigas (3 %), Embamunaigas (2 %). Also, the operating company Buzachi Operating Ltd, Tethys Aral Gas, Kazakhoil Aktobe, Kazakhmys Petroleum, and Karazhanbasmunai have the share of 1 % each. The rest of medium and small hydrocarbon producers have in aggregate the share of 9 %, and another 2 % of the reserves are free from mineral production and are in the common fund.
Compared with 1996, oil production in Kazakhstan has increased almost threefold. To date, the country produces about 75 million tons. Based on the 2010 year results, the hydrocarbons producers of Atyrau Oblast (40.8 %), Mangystau Oblast (25.1 %), and Aktobe Oblast (10.7 %) made the most contribution in crude oil production in the country (Table 1).
The leader in crude oil production is Tengizchevroil, whose share in total crude output in Kazakhstan is 35 %. CNPC-Aktobemunaigas, Uzenmunaigas Production Branch, Mangystaumunaigas, and KPO have 8 % each. Kazgermunai, Turgai Petroleum, PetroKazakhstan Kumkol Resources, and Embamunaigas Production Branch extract 4 % each of the total output. Buzachi Operating Ltd, Karazhanbasmunai, and Karakuduk-Munai produce 2 % each. The rest of hydrocarbon producers account in aggregate for only 10 % of total oil production.
Concerning gas production, the main volume of it, including gas dissolved in crude oil, is provided by Atyrau oblast (43 %), West Kazakhstan oblast (30.8 %), Aktobe oblast (10.4 %), and Mangystau oblast (9.8 %).
In aggregate, in 2010 in Kazakhstan 4.3 billion cubic meters of associated petroleum gas was produced (gas cap + non-associated gas). The leading positions here are occupied by KPO (37 %), KazMunaiTeniz (30 %), KazGPZ (11 %), KazTransGas (8 %), and Mangystaumunaigas (5 %).
Extraction of dissolved gas in 2010 amounted to 27.8 billion cubic meters. Of this amount, 49 % was produced by Tengizchevroil, 29 % by KPO, 10 % by CPNC-Aktobemunaigas (Zhanazhol field).
Meeting the terms of the contract
The actual fulfillment by the mineral producers of their financial obligations (FO) as per the terms and conditions of the mineral production contracts in 2010 reached $41,628.3 million. With this, 53 % of the total FO, or $22,251 billion were investments, 39 %, or $16,058.6 billion were the taxes, 7 %, or $3,081.9 billion were indirect costs, and 1 %, or $166.4 million were the cost of insurance. Less than 1 %, or $70.4 million were deductions to the liquidation fund.
Considering directly the structure of investments, of $22,251 billion invested, capital expenditures totaled $8,891.7 billion, the cost of production $11,149.3 billion, the cost of exploration $1,708.8 billion, and spending for social projects and local infrastructure $287 million. In addition, $130.1 million was allocated for training of Kazakhstani specialists, $43.1 million for the operation of facilities, and $27.3 million for monitoring of the condition (pollution) of mineral resources. At the same time, only $13.7 million was spent by the mineral producers for acquisition of technologies in 2010.
We have to admit the fact that not all the mineral producers fulfill their obligations in full. The fulfillment of the contractual obligations by more than 100% was recorded at 126 sites of 263 total under development. For the rest, this indicator looks as follows: the contractual obligations are fulfilled by 70 % to 100 % at 48 sites, by 50 % to 70 % at 10 sites, by 30 % to 50 % at 15 sites, and by less than 30 % at 64 sites.
The raising of large foreign investments in the oil and gas sector of Kazakhstan, undoubtedly, produced a positive effect on the level of socio-economic development of the country. However, on the other hand, the growth of capital outflow, observed in the last years, has a negative impact on the balance of payments of the country.
Thus, over the past 10 years (2000–2010) investments in hydrocarbon production exceeded $100 billion (75–80 % of this amount wasforeign investments), while the gross income from oil exports reached $400 billion that is 4 times bigger. For example, if we assume that, on average, the cost of oil is about 20 % of the world market price, 15–20 % are taxes on gross income, 15 % are administrative costs and costs for selling of oil, so, the net profit ofthe foreign companies from export of Kazakhstan’s oil is more than $100 billion a year – the money that comes to the foreign companies’ accounts in foreign banks.
Besides, it should be noted that under the PSA contracts (excluding data on Kashagan, where there has been no production yet),Kazakhstan's share on the profit oil sharing decreased, on average, from 35 % to 20 %, while the contractor’s share increased accordingly from 65 % to 80 %. Only in the last 5 years the total value of profit oil of the contractors working under the PSA exceeded $5 billion, including more than $2 billion in 2010.
In 2010 under Decree #29-IV of the President on June 24, 2010 a new Law "On Mineral Resources and Mineral Production" was enacted, which combined the two previously existing laws "On Mineral Resources and Mineral Production" (#2828 of January 27, 1996) and "On Oil» (#2350 of June 28, 1995). The new law is aimed to improve and systematize the laws on mineral production and eliminate gaps in it, to protect the interests of the state as the owner of mineral resources, as well as to simplify the process of granting a right for mineral production.
· Combining and combined regulation by a single Law of mineral production operations with regard to any minerals, including crude oil and natural gas;
· Detailed regulation of the procedure for entering into a contract;
· Detailed regulation of the procedure for conducting bids for granting the license for mineral production and carrying on direct negotiations;
· Setting a clear and transparent procedure for entering into a contract for mineral production;
· Preparing a full list of project documents, procedures for their approval, and requirements to them;
· Abolition of the annual work programs;
· Setting the procedure for exercising by the state of its preemptive right for acquiring the right for mineral production (or part of it), participating interests, stakes;
· Settlement of the procedure for termination of the mineral production contracts;
· Abolition of the procedure for suspension of the contracts;
· Introduction of an extrajudicial procedure for resumption of the contracts.
Special emphasis in the law is put on ensuring the interests of the state in the area of local content (LC) in the purchase by mineral producers of goods, works and services.
To counter corruption and ensure transparency of decision-making by government agencies, it was proposed to set up a number of consultative and advisory committees with sharing their powers:
· Interdepartmental Commission for issues of exercising by the state of its preemptive right;
· Central Committee for exploration and development of mineral resources;
· Commission for bids for granting the license for mineral production;
Prospects of development
One of the key strategic directions of further development of the oil and gas sector is the improvement of regulation of relations in the field of mineral production operations in order to raise the quality of public administration. The work will continue to monitor and analyze the fulfillment by the mineral producers of their contractual obligations (especially at large sites), to represent the interests of Kazakhstan in arbitration proceedings initiated by mineral producers against Kazakhstan, to further fulfill the PSA with regard to the Khvalynskoye and Centralnoye fields, as well as to continue the joint project with Russia on development of the Imashevskoye deposit.
Special attentionwill be given tobringingall the mineral production contractsincompliance with the applicable local content related laws, as well as to taking measures actionagainst the mineral producers who ignore statutory requirements as to the increase of transparency in the procurement anddevelopment of local content.
In addition, in 2011, it is planned todraft new wording to the NationalPlan for Prevention and Response to Oil Spills at Sea and in Inland Waters of the Republicof Kazakhstan.
In general, the development prospectsare aimed atensuring the high levelsof competitivenessand national security,ensuringthe growing needsof the economyin the hydrocarbon raw material, as well as at the development ofscientific andtechnological potential to use the latter more efficiently.
This information was prepared by Elvira Djaturaeva, PhD, Head of Mineral Production Results Analysis, RCGI Kazgeoinfo