Biggest oil find in decades becomes $39 billion caution

[The Straight Story]

Biggest oil find in decades becomes $39 billion caution


After 11 years and $39 billion of investment, Exxon Mobil Corp., Royal Dutch Shell Plc (RDSA) and their partners have yet to sell a drop of oil from what was touted as the world’s biggest discovery in four decades.

Centered on a man-made island 70 kilometers (44 miles) from Kazakhstan’s coast, the Kashagan project is just months away from completion, $15 billion over budget and 8 years behind schedule. As the milestone of first oil nears, the Kazakh government is pressuring the group for a commitment on an even- bigger second phase, a project the oil companies are undecided on and one analyst says may not make money.

“The biggest worry is whether the project can ever be profitable given the huge cost escalation and start-up delays,” said Julian Lee, a senior analyst for the Centre for Global Energy Studies in London. It may be “impossible for investors to earn a return on any investment in a second phase before their contract for the field expires” in 2041.

Kashagan, which may hold enough oil to supply the world for six months, has become a cautionary tale for oil companies worldwide as they spend an estimated $20 trillion through 2035 finding supplies in ever more difficult places. Expenses mounted as engineers underestimated the complexity of drilling under a region of the Caspian Sea that’s frozen almost half the year. The government accused the partners, which are allowed to recoup spending before sharing the oil, of inflating costs.

http://fuelfix.com/blog/2011/11/17/biggest-oil-find-in-decades-becomes-39-billion-caution/