Megaprojects A Megaheadache For Oil Bosses

Most discussions are set to be moderated by Paolo Scaroni, the chief of Italy's Eni, a company that for many years was lead operator at the Kashagan field in Kazakhstan, the world's largest discovery in 30 years.

Superlatives come naturally to the Kashagan project, including the most notorious cost overrun in the last decade. Its initial budget of $10 billion has ballooned to estimates of five times that amount and more.

Not too far behind, the Chevron-led Gorgon LNG facility in Australia is now set to cost $54 billion, up almost $20 billion from initial estimates. Chevron is the world's second biggest investor-controlled oil company, and yet its own $25.5 billion share of that cost will eat up eight months' worth of its total $40 billion a year spending budget.

New Strategies

The latest setback to the Kashagan project was late last year, when pipeline leaks halted output just weeks after start-up.

"Kashagan! I don't want to hear this word any more," one frustrated oil executive said, shaking his head in disbelief.

The project's participants, which include Exxon Mobil, Royal Dutch Shell and Total - three of the global top five - could yet face new penalties from the Kazakh government, which was hoping to ramp up output this year and increase budget revenues to meet rising social costs.

"Four years ago we heard threats of project nationalisation because of delays. And it cost us hugely," an oil executive said referring to an earlier settlement at Kashagan, when Kazakhstan took a large portion of the project under state control.


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