Fitch says relaunch of Kashagan oilfield is credit positive for Kazakhstan

By bne IntelliNews October 24, 2016

The relaunch of Kashagan oil field is positive for Kazakhstan’s credit ratings, Fitch Ratings said in a note on October 21.

The ratings agency believes Kashagan will more than offset declining production at Kazakhstan’s other sites. On the other hand, the agency’s oil price projections indicate that recovering investments in the project will be a challenge, making an expansion of the project unlikely given other risks.

Production at Kashagan, under development by international consortium NCOC, started in September 2013 but was halted a few weeks later after gas leaks were detected in its pipelines running to the onshore processing facility at Bolashak. An attempt to restart operations was abandoned in October 2015. Originally scheduled to cost at around $10bn, the costs of the project have eventually spiralled to more than $50bn over two decades. Production resumed earlier this month with the first batch of 200,000 barrels of cargo oil for exports sent on October 14, 2016 

Fitch expects production from the field to reach up to 300,000 barrels of oil equivalent per day (mboepd) in 2017-2018, assuming there are no further significant technical problems. That  would account for 18% of total hydrocarbon production in the country on 2015 levels, helping the country remain a significant supplier of oil to China and Europe, despite declining production at brownfield sites.  

Fitch also expects Kashagan to support Kazakhstan’s economic growth, which is also in line with the Kazakh government’s expectations. Short term effects on the balance of payments are expected to be insubstantial due to rising debt repayments and profit repatriation, which will accompany growth in exports. “It will be difficult for Kashagan to recover its USD50bn-plus capex based on our long-term Brent price assumption of USD65/bbl, despite the weak tenge,” the agency noted.

“There is a possibility that the consortium that includes ExxonMobil, Shell, Total, Eni, China National Petroleum Corporation and NC KazMunayGas (NC KMG) will postpone the potential project expansion or may not proceed with it, if oil prices do not rebound more strongly from current levels.”

Since Kashagan will eventually generate dividends for NC KMG, Fitch sees it as credit positive for the company in the long-run. At the same time, the company will have to start paying $2.3bn of acquisition debt to consortium partners. As such, the agency projects NC KMG to apply its share of dividends from Kashagan to repaying the debt in 2016-2019.

Kazakh state-owned oil and gas transporting companies, KazTransOil and KazTransGas, will benefit from higher transportation volumes, since more hydrocarbons will flow through their pipelines as Kashagan ramps up production and exports.

Kazakhstan holds a 16.81% stake in the project through NC KMG and the national sovereign wealth fund Samruk-Kazyna. Kashagan is the second largest field in the world with recoverable reserves estimated at 9bn-13bn barrels.

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