Hurricane Hydrocarbons to Build Pipelines for KazMunaiGas

Hurricane Hydrocarbons has concluded a comprehensive agreement with KazMunaiGas, the National Oil Company of Kazakhstan, setting the principles of their future cooperation on oil pipelines. Under the agreement, Hurricane will support and assist KazMunaiGas in its future plans to build the Kumkol-Aralsk-Kenkiyak oil pipeline, a total length of about 700 kilometers:

  • The Companies are undertaking jointly a feasibility study.
  • The project will be controlled and operated by KazMunaiGas.
  • Hurricane will commit to ship its available export volumes under ship or pay contracts, in order to facilitate the financing of the project.
  • Hurricane will take a minority interest in the project, if required for the financing of the project.

Design, financing and construction of the project may require two to three years. The pipeline may be also built in phases, the first section being from Kumkol to Aralsk. Considering the construction currently under way by a KazMunaiGas affiliate of a 450 km oil pipeline from Kenkiyak to Atyrau, the KAK pipeline when completed would achieve full pipeline connection of the South Turgai basin oil fields to Atyrau, where crude could be shipped further through the Atyrau-Samara pipeline or the Caspian Pipeline Consortium (CPC) pipeline or to the port of Aktau. Alternatively, the KAK pipeline may be reversed in the future to ship Western Kazakh crude oil to Southern or Eastern markets, adding valuable strategic options for future Kazakh crude oil exports.

The agreement also confirms KazMunaiGas support for the construction of the QAM pipeline. The QAM pipeline, initiated by Hurricane, is divided in two sections:

  • One 104 km section from Aryskum pumping station to Dzhusaly will connect Hurricane's Qyzylkiya, Aryskum and Maybulak oil fields to a new rail terminal at Dzhusaly, for further rail shipments to Western destinations.
  • One 70 km section will connect Hurricane's Kumkol fields to Aryskum.

The 16 inch QAM pipeline, currently under construction, will have an initial design capacity of about 100,000 barrels of oil per day and will reduce transportation costs by about US$2.50 per barrel, resulting in a fast pay out and bringing improved economics for future developments. Expected to be in full operation by the third quarter of 2003, the QAM pipeline will facilitate the early development of Hurricane's known oil fields and stimulate further exploration in the South Turgai basin.

KazMunaiGas will take a participation of 50% in the equity and financing of the Aryskum-Dzhusaly section of the QAM pipeline, under a Joint Venture arrangement with Hurricane. Following completion of construction of the pipeline by Hurricane, KazTransOil a subsidiary of KazMunaiGas will become the technical operator of the pipeline. The companies have agreed to discontinue the operation of the Aryskum-Dzhusaly section and to reverse the section Kumkol-Aryskum and to direct exports through the KAK pipeline as soon as the KAK pipeline is completed.

The agreement also confirms the continued use by the Turgai producers of the KazTransOil Eastern branch pipelines and terminals for crude supplies to the Shymkent refinery and other export routes.