CIS Oil & Gas Summit

THE 12TH ANNUAL CIS OIL & GAS SUMMIT

Interview with Pierre Offant, Managing Director, North Caspian Operating Company B.V. (NCOC)

15/04/10

 

15/04/10

Interview with Pierre Offant, Managing Director, North Caspian Operating Company B.V. (NCOC)

Written interview from Pierre Offant, Managing Director, North Caspian Operating Company B.V. (NCOC) carried out by Evnika Polovinkina, Conference Director for the Energy Exchange’s CIS Oil and Gas Summit taking place in Paris 19-21 May 2010. Mr Offant will be delivering presentation on 21st May 2010.

Evnika Polovinkina: Once again, the Energy Exchange is delighted with NCOC’s participation in the CIS Oil & Gas Summit this year. What are the main points to be addressed during the event?

Pierre Offant: NCOC looks forward to participating in the CIS Oil & Gas Summit where we will provide an update of our 2009 activities, highlighting some of the significant progress that we made during the year.

As I explained last year, North Caspian Operating Company B.V. (NCOC) is the designated Operator of-activities under the North Caspian Sea Production Sharing Agreement (NSCPSA), acting on behalf of a consortium of seven oil and gas companies. As well as the giant Kashagan field, other discoveries in the NCSPSA contract area include Kalamkas, Kashagan South West, Aktoty and Kairan. We have already started to develop Kashagan, and continue to appraise the other discoveries.

Due to its size and technical complexity, the Kashagan field will be developed in phases. Three phases are currently envisaged; Phase I, known as the Experimental Programme or EP, and Phases II and III, the Further Phases of development. Together they represent Full Field Development. Agip KCO leads Phase I, which was around 70% complete by the end of 2009. We reached a number of important construction and drilling milestones during the year, and I will provide more information on this at the conference.

With a project of this size, scale and complexity, thorough planning at the outset is integral to future success. Shell  development Kashagan B.V. (SDK) was appointed to undertake the front end engineering design (FEED), and the detailed engineering design, construction and commissioning of the Kashagan Project Phase II offshore facilities in February 2009. As part of this effort, SDK mobilized a ‘pioneer’ team to Aktau in 2009.

I will provide an update on our planning for Phase II, as well an overview of the activities of NC Production and Operations Company (NCPOC) – the Agent Company responsible for operations and production, at the CIS Oil & Gas Summit.

Evnika Polovinkina: The project development is based on an original operating model. How the NCOC partners divide their responsibilities to maximize efficiency?

Pierre Offant: To help efficiently manage a project of this size and scale, a new operating model that utilises the experience and expertise of all shareholders was introduced at the end of 2008 / early 2009.

In October 2008 the government of the Republic of Kazakhstan reached an agreement with the seven companies participating in the NCSPSA to form a new joint operating company; North Caspian Operating Company B.V. (NCOC). NCOC became designated Operator under the NCSPSA in January 2009, taking over the role that was formally held by Agip KCO.

NCOC acts on behalf of a consortium of seven energy companies: KazMunayGas, Eni, Shell, ExxonMobil, Total, ConocoPhillips and INPEX. Responsibilities are divided as follows:

As Operator under the NCSPSA, NCOC defines and then steers the overall strategy of the venture, ensures planning and coordination, manages conceptual and geosciences studies, and interfaces with stakeholders - particularly KazMunayGas
(KMG) which represents the Republic of Kazakhstan.

The execution of operations is delegated by NCOC to four Agent companies. Agip KCO is responsible for delivery of Phase I (Experimental Programme, including drilling); Shell Development Kashagan B.V. (SDK) is responsible for the planning,
development and construction of the offshore facilities of Phase II, while Agip KCO will do the same for the onshore facilities. ExxonMobil Kazakhstan Inc. is responsible for Phase II drilling activities and a KMG and Shell joint venture (NCPOC) will manage production operations of all phases.

NCOC is also responsible for the management of Social and Infrastructure Projects (SIP) and sponsorship and donation programmes. The execution of these programmes is delegated by NCOC to two Agent companies, NCPOC for SIP and
Agip KCO for sponsorship and donation activities. This is an innovative operating model, for a unique project.

Evnika Polovinkina: Given the size and complexity of the project, what are the main technical challenges of working on the Kashagan field?

Pierre Offant: Developing one of the world’s biggest oil discoveries of the last 40 years is a special privilege, which brings unique challenges, opportunities and responsibilities. The combined safety, engineering, logistics and environmental
challenges make it one of the largest and most complex industrial projects currently being developed anywhere in the world.
Although we worked 86.6 million man-hours in 2009, a 40% increase on 2008, our overall safety performance improved. In-fact, our safety performance per million man-hours worked was better than the Oil and Gas Producers (OGP) industry
average.

Some of the challenges we are managing include:

· The Kashagan reservoir is located 4,200 meters below the seabed and is highly pressured (770 bar of initial pressure). The crude oil that it contains has high ‘sour gas’ content, specifically 15% of hydrogen sulfide (H2S).

· Low salinity, due to the in-flow of fresh water from the Volga River, combined with shallow waters and winter temperatures below minus 30 degrees mean that the northern part of the Caspian Sea freezes for nearly five months of the year. Ice drifts and ice scouring place heavy constraints on construction activities.

· The northern part of the Caspian Sea is a very sensitive environmental area with abundant and diverse fauna and flora, including a number of endemic species. We are working hard to prevent and minimise any impacts on the environment that our operations may have.

· There is limited infrastructure around the northern Caspian. This makes it a challenging environment to supply essential project equipment. These logistical challenges are amplified by limited access to waterways, such as the Don Volga Canal and Baltic Sea Volga, which are only navigable for around six months of the year due to thick winter ice.

To meet these challenges, NCOC draws upon the local and international experience and expertise of its shareholders.

Evnika Polovinkina: Because the Caspian Sea is closed, environmental damage could be devastating. What is NCOC’s strategy on protecting highly sensitive environment of the North Caspian Sea?

Pierre Offant: NCOC is determined to develop a world-class project that is designed and operated to high environmental and safety standards. The coventures expect this. The government of the Republic of Kazakhstan expects this.
NCOC expects this.

We are committed to conducting operations responsibly and in full compliance with the laws of the Republic of Kazakhstan. For example, a number of local companies were employed by Agip KCO to produce Environmental Impact Assessments (EIAs) of its operations, including the offshore and onshore facilities, the trunklines and the onshore export pipelines.

When it comes to oil spills, our first priority is always the prevention of spills in the first instance through the robust design and construction of our facilities. However, there is a dedicated Oil Spill Response group with facilities, equipment and
personnel located in both Atyrau and Bautino ready to respond to an oil spill should it be necessary to do so.

Previously, Agip KCO has been praised for its swift response during its participation in the annual oil spill response exercises conducted jointly with the Ministry of Emergencies of Kazakhstan.

Evnika Polovinkina: Kazakhstan has set an ambitious local-content goal for international companies operating in the region. How is NCOC planning to achieve a Kazakh-content level of 50% of goods and 90% of services by 2014?

Pierre Offant: NCOC and its Agent companies strive to maximise local content in a sustainable manner in line with the NCSPSA and Kazakhstan legislature. The Venture takes a systematic and long-term approach to the development of local
capacity and local content. As a result, in 2009 the Operator and its Agents spent over US $1.8 billion on local goods and services and employed close to 40,000 people in Kazakhstan, around 80% of whom were Kazakhstani citizens.

Kashagan is the first offshore oil and gas project in Kazakhstan and one of the biggest and most technically complex projects currently being developed anywhere in the world. Add to that the ecologically sensitive environment of the north
Caspian and you begin to understand some of the major challenges we face – and are overcoming!

These challenging conditions require the use of some of the safest and most technologically advanced equipment. Some of this equipment is not currently available in Kazakhstan and is therefore purchased from abroad. The Republic of
Kazakhstan (RoK) Government estimated the level of Local content to be achieved by 2014 as an average across the Republic, and this level will be higher in some oil and gas projects, while it may be lower in other projects. At this time we are updating our long-term local content development programme with an emphasis on identifying priority areas for local content development and creating long term opportunities.

NCOC recognizes that local manufactures need to develop capability in order to meet international standards, and has supported a number of companies to obtain ISO, American Petroleum Institute or American Society of Mechanical Engineers certificates and other international quality certificates. In addition, NCOC and its Agent Companies frequently conduct seminars and trainings for local companies. NCOC will continue to do everything possible in accordance with NCSPSA and RoK Legislation to increase the procurement of Kazakhstan made goods and services.

The venture is also committed to the training and development of Kazakhstani staff. More than 900 specialists have already been trained at the Agip KCO training centre in Atyrau. At the end of 2009 110 trainees were recruited for the Production and
Maintenance department of NCPOC. These trainees are currently undergoing an intensive programme of English language and basic discipline knowledge and will start their technical training in October 2010.

In addition, More than 100 KMG secondees were working for the venture by the end of March 2010, and the NCOC international posting programme for local staff had begun.

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