International contractors face a major setback in Kazkahstan as the Western-led ventures behind the country’s three leading oil and gas projects — Tengiz, Kashagan and Karachaganak — prepare to reduce their investments in the developments.
Tengizchevroil, Karachaganak Petroleum Operating and Kashagan’s North Caspian Operating Company continue to dominate the country’s oil and gas services sector, despite authorities increasing turning to investors from Russia and China.
The trio all have Western oil majors as partners, including Chevron, Eni, Shell, TotalEnergies and ExxonMobil and have used mostly international contractors in recent years.
And they accounted for more than 76% of all services contracted by oil and gas companies in the country last year, according to a report by Kazakh industry consultancy Energy Monitor.
In spending terms, the three operators together paid more than 4.2 trillion tenge ($9.2 billion) to service providers, including oil and gas transmission operators in 2022, according to the report.
In comparison, state run KazMunayGaz paid about 707 billion tenge, while other oil and gas producers spent a total of 600 billion tenge, the report said.
Tengischevroil, the Chevron-led operator of the Tengiz project, was reported to have expensed more than 3 trillion tenge to service contractors in 2022 as it continued its $45 billion expansion project aimed at boosting oil production by at least 40% to 850,000 barrels per day.
The Tengiz expansion includes construction of facilities under a wellhead pressure management project (WPMP) and future growth project (FGP).
The WPMP will enable existing facilities to continue production at full capacity by lowering wellhead pressure, while the FGP involves deploying powerful sour gas injection compressors and injection wells to pump excess associated gas into the Tengiz reservoir and support its pressure.
Facilities are due online in stages between 2024 and 2025, with Chevron saying at the end of October that the expansion costs are likely to rise by another 4% following a major increase in 2019.
According to the report, the trio accounted for 92% of Kazakhstan’s total industry spending on construction services last year.
Tengizchevroil spent more than 1 trillion tenge on construction services alone, while Kashagan spent 176 billion tenge and Karachaganak 89 billion tenge, with foreign shareholders stepping up investments into the production capacity upgrade projects, according to the report.
The construction segment is dominated by foreign-owned and managed contractors, led by Senimdi Kurylys, Consolidated Contractors Company and Novus Bolashak, which together accounted for about 37% of last year’s order book, worth more than 1.4 trillion tenge.
The Western-led operators also topped the orders for maintenance and repair services, spending a total of 385 billion tenge, or 87% of the country’s total industry payments for such services, the report revealed.
Tengiz, Kashagan and Karachaganak also led the way in orders for accommodation and catering, exploration and geophysics, design and engineering, personnel and recruiting, logistics, environmental, IT and other services in Kazakhstan last year, the report said.
Local drillers
According to Energy Monitor, the sole service segment in which the Western-led trio did not lead last year was well drilling.
KazMunayGaz subsidiary Ozenmunaygaz led the field in this segment, accounting for almost 32% of all Kazakh drilling assignments in 2022.
Ozenmunaygaz was followed by Tengizchevroil and another KazMunayGaz’ subsidiary, Mangistaumunaygaz, each accounting for 8% of total industry drilling orders in the country.
Kazakh authorities have repeatedly pushed KazMunayGaz to invest in Ozenmunaygaz’s brownfield projects to help maintain oil production levels at legacy assets in the Mangistau region and to aid regional employment and social programmes that are important to the government.
With two KazMunayGaz subsidiaries leading the table in drilling orders, the report lists the top three oil drilling providers as Kazakh-based companies Burgylau, OzenMunayService and Oil Services Company.
Midstream opportunities
With the Tengiz expansion project winding down over the next two years, Energy Monitor executive director Nurlan Zhumagulov told Upstream that international and local contractors in Kazakhstan may see greater opportunities in the country’s planned gas treatment and processing and gas polymer projects rather than in the upstream sector.
A total of 11 gas treatment and processing and gas polymer projects, with total estimated investments of $23.7 billion are at various stages of progress, from discussion and planning to front-end engineering design, the report said.
Significantly fewer opportunities are forecast for contractors in upstream projects, where KazMunayGaz hopes to soon move forward with two major developments — Kalamkas-Khazar and Karaton — in partnership with Russian producers Lukoil and Tatneft.
The two developments together are estimated to require total investments of $9 billion, according to Energy Monitor.
Source : UpStream