BG to Export First Oil to World Markets from Karachaganak

BG and its partners in the giant Karachaganak oil and gas condensate field in North West Kazakhstan (ENI, ChevronTexaco and Lukoil) report that first oil has been produced from the new field facilities for export through the Caspian Pipeline Consortium (CPC) pipeline to world markets via the Black Sea. Gas injection into the field has also begun. First sales of oil exported through CPC are expected, as planned, by the end of the third quarter of 2003, when oil will be available for offtake at the Black Sea port of Novorossiysk.

The start of export production marks the delivery of a major objective under Phase Two of the Karachaganak field development program. This success is as a result of close and effective co-operation between the consortium and the Republic of Kazakhstan and its national oil and gas company, KazMunaiGas.

One of the world's most complex hydrocarbons projects, Phase Two has involved an investment for BG (joint operator with ENI) of over $1 billion and employment, at its peak, of some 20,000 workers. It has also demonstrated world-class environmental practices and a long-term social commitment to Kazakhstan that continues until the end of the license period in 2037.

Speaking today, BG Chief Executive Frank Chapman said: "This is one of the most significant achievements in the global hydrocarbons industry, and is a tribute to all those who have worked in challenging conditions on the massive Phase Two construction program. In one of the largest foreign investment projects in Kazakhstan, we have fulfilled the commitment made to the Republic that first export oil would be produced by the third quarter of 2003."

BG and ENI are joint operators of Karachaganak, each with 32.5%. The other partners are ChevronTexaco with 20% and LUKoil with 15%. KazMunaiGaz, the designated Authority of the Republic of Kazakhstan, jointly manages the project. Phase Two included enhancement of existing facilities inherited from the Soviet era, as well as the construction of new gas and liquids processing and gas injection facilities, the work-over of more than 100 wells, the construction of a 120 MW power station and the laying of the 635 kilometer pipeline to connect the field to the CPC pipeline at Atyrau. Before the completion of the new facilities, all gas and condensate production was sent for processing at the Orenburg facility in Russia. The output from the field is now planned to increase to more than 10 million tons per annum of liquids (200,000 barrels of oil per day) to CPC and Orenburg, and up to 7 billion cubic meters of sales gas per annum (700 million standard cubic feet per day) to Orenburg. Approximately 70% of the field's condensate is expected to be exported via CPC.

The Karachaganak field, discovered in 1979, is one of the world's largest oil and gas/condensate fields. Located in North West Kazakhstan, it covers 280 square kilometers and holds potential recoverable reserves of around 5 billion barrels of oil equivalent over the 40-year license period. Field production began in 1984.

In 1992, to stimulate further field development, the Kazakh authorities granted BG and Agip/ENI exclusive rights to negotiate a preliminary Production Sharing Agreement (PSA). In 1995, a Production Sharing Principles Agreement (PSPA) was signed, under which BG and Agip took over operatorship of the field to halt rapid production decline and to improve the safety and environmental performance of the facilities. In 1997, Texaco acquired a 20% share of Karachaganak, and LUKoil took over the 15% formerly held by Gazprom.

In November 1997 a 40-year Final Production Sharing Agreement (FPSA) was signed, superseding the PSPA and providing for the full development of the field. The FPSA, which became effective on 27 January 1998, envisages a phased development program. Phase 1 refers to the period prior to the signing of the FPSA. Phase 2 involves the major enhancement of existing facilities and the construction of new ones. Further phases are expected to follow, to increase liquids production, subject to the development of a market for the substantial additional gas volumes that will be produced.