The hits keep on coming for companies invested in the North Caspian Operating Company, the consortium developing Kazakhstan’s giant Kashagan oil field. One of the world’s largest and most complex oil field development projects, Kashagan has been plagued by delays and cost overruns for years.
The project briefly came on stream late last year only to be promptly shut down due to technical problems in the pipeline infrastructure. Apparently the highly-corrosive and deadly hydrogen sulfide gas associated with the hydrocarbon resource weakened critical pipe welds, forcing the line to be replaced at additional cost and two years of additional delay.
Interestingly, the consortium appears to have removed the “news” section from its website, ostensibly due to a shortage of the good variety. It appears the NCOC is no longer issuing statements. Read Breaking Energy coverage here, for one of the last statements the companies made regarding the pipeline weld situation. Additional reporting can be found here.
The presence of highly-concentrated hydrogen sulfide was well known throughout project development, making the discovery of the damaged pipeline a major engineering snafu. In fact, the project’s operator had changed at least once, with much disagreement over which company should play that important role, but that’s another story.
Now the Financial Times reports Morgan Stanley downgraded 2016 cash flow estimates for Eni, Total and Shell by $800 million each due to Kashagan’s woes.
“We previously assumed Kashagan would add $800m to 2016 cash flow for each of the three European [majors],” said Martijn Rats, Morgan Stanley’s European oil analyst. “Any delay would obviously not help the recovery in free cash flow,” he said. – Financial Times
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