WoodMac: Shell’s Khazar exit highlights project’s marginal economics

Oil major Shell has decided to withdraw from a project located offshore Kazakhstan. This decision highlights the project’s marginal economics in the highly competitive global portfolios of the majors, according to Wood Mackenzie. 

Reuters reported on Monday that Shell had pulled out of the Khazar offshore project in Kazakhstan, while a consortium of which Shell is a member has given up on Kalamkas, another small offshore block nearby.

The news agency also said that Shell was leaving Khazar after investing about $900 million in it.

Commenting after Shell’s withdrawal from the Khazar project, and the Kashagan consortium’s decision to pull out of the Kalamkas More development, Ashley Sherman, principal analyst at Wood Mackenzie, said: “The joint development of the Kalamkas More and Khazar offshore oil fields has been the key greenfield project to watch in Kazakhstan’s oil sector.

“Its timeline may have been long – with production not targeted until the late 2020s – but it would have offered something vital: large-scale future oil production away from the country’s three megaprojects (Kashagan, Tengiz, and Karachaganak).”

He said: “The timing of the decision may surprise, given the ‘define’ stage could have enabled more studies and potentially more cost savings from a $5 billion estimate. But the decision itself highlights the project’s marginal economics in the highly competitive global portfolios of the majors.

“Kalamkas More (the largest Kashagan satellite) and Khazar (Pearls block) are fields that will undoubtedly attract future interest from international investors. Just like nearby exploration blocks have since Kazakhstan’s tax reforms in 2018. But this is another reality check for the Caspian region’s oil and gas industry.

“Whether it’s because of tough logistics or complex geology, the shallow waters of Kazakhstan’s offshore face obstacles to full competitiveness against lower-cost deepwater opportunities elsewhere in the world.”

It is also worth mentioning that Shell has decided to market its current onshore upstream assets in Egypt’s Western Desert to fully concentrate on growing its Egyptian offshore exploration and integrated gas business. According to Wood Mackenzie, this plan is Shell’s attempt to high-grade its portfolio.

Offshore Energy Today Staff

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