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NORTH CASPIAN SEA PROJECT: from vision to reality


CONTENT Introduction ....................................................................................................................................................................................2 Project challenges ........................................................................................................................................................................3 Development concept ...............................................................................................................................................................6 Technical breakthroughs and innovations .........................................................................................................................8 Operating model .......................................................................................................................................................................11 Sustainable development .......................................................................................................................................................12 Conclusion ....................................................................................................................................................................................16

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Introduction The Republic of Kazakhstan is the largest country in Central Asia and the biggest landlocked country on earth. It occupies a land mass equivalent to Western Europe. The Caspian Sea, the world’s largest enclosed body of water, defines the country’s western frontier. Hidden deep below it are prolific energy resources, which figure prominently in Kazakhstan’s plans to become a major supplier of the world’s growing energy needs. Kazakhstan supports an open climate for foreign investment and for joint projects between international and domestic companies. One such project covers all activities under the North Caspian Sea Production Sharing Agreement (NCSPSA). Signed in 1997, the NCSPSA provides a framework for the exploration and production of oil and gas in a 5,600 square kilometre area in the northern part of the Caspian

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Sea. One of the world’s biggest and most complex industrial projects, it includes the giant Kashagan field, the largest find since oil was discovered in Alaska’s Prudhoe Bay some 40 years ago. With around 35 billion barrels of oil in place, and with a production life of decades, Kashagan is expected to contribute billions of US dollars in taxes and royalties to the Republic of Kazakhstan. Other discoveries within the NSCPSA contract area include Kalamkas, Kashagan SouthWest, Aktote and Kairan. North Caspian Operating Company B.V. (NCOC) is operator of the project, working on behalf of seven international energy companies, KazMunaiGas, Eni, Shell, ExxonMobil, Total, ConocoPhillips and INPEX, pooling their expertise and experience in exploring, developing, and producing hydrocarbons.


Project challenges Atyrau

Kashagan

Kairan Kashagan SW

Aktoty

Kalamkas

The Kashagan reservoir is located some 4,200 metres below the seabed and is highly pressured. Because of its low salinity due to the inflow of fresh water from the Volga River, very shallow waters of only three to four metres, and subarctic temperatures, this part of the Caspian freezes over for nearly five months a year. Drifting ice and ice scouring (a narrow ditch on a seabed caused by the movement of ice) put heavy restraints on construction, production, and logistics, calling for innovative technical solutions.

NCSPSA contract area

45

200 km.

Development of the Kashagan field represents a unique combination of technical complexity and supply-chain coordination, in a harsh offshore environment where temperatures can drop below -30 degrees Celsius in winter and rise to 40 degrees Celsius in the summer.

.

km

75 .

km

Reservoir pressure: > 750 bars Sour gas content: 15% H2S and 4% CO2 Perspective of the Kashagan reservoir

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Project challenges The light crude oil to be produced from the Kashagan field has a high sour gas content of 15% hydrogen sulfide (H2S). Bringing onstream a high pressure, high sour gas field is not new: the Lacq field in France, which started producing in the late fifties, is still going strong. What is new is bringing a high pressure, high sour gas field on-stream in a harsh operating environment, which requires many more precautions and a much larger investment to manage the safety risks.

H2S & Pressure 800

Kashagan

700

Ekofisk North Sea

Pressure [bar]

600

South-Western Lacq Tengiz

Karachaganak North Sea

500

Hassi Messaoud

400

North Carolina

Jumping Pound

300 200

La Barge Ras Gas

100 0

0

5

10

15

20

H2S [%]

25

30

35

40

Kashagan: pushing the limits

Reservoir conditions are not the only challenge that needs to be managed. The northern part of the Caspian Sea has very shallow waters which, due to sub-arctic winter temperatures, freeze for nearly 5 months per year. This places a heavy constraint on construction and logistics.

Ice walls face an artificial island

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The sensitive environment in the northern part of the Caspian Sea poses challenges, too. Located at the confluence of the Ural and Volga rivers, the sea and its surroundings are a rich and diverse depository of flora and fauna, and 60% of the species are unique to the Caspian. While the Sturgeon is often considered the most commercially valuable species, the Caspian Sea is also home to seals, while its coastal wetlands attract a variety of birds, some of them listed in the Red Data Book of Kazakhstan. The Sea is also a major migration route for birds flying from Asia to Siberia. On the semi-desert shores of the Caspian Sea, the saiga, a rare species of antelope, migrates over ancient routes.

Ural delta Volga delta

Kashagan

The Caspian Sea: a sensitive environment

There are major transport challenges, too. Because the Caspian Sea is landlocked it is difficult to supply essential equipment to project locations. Logistical challenges are amplified by limited access to waterways, such as the Volga Don Canal and Baltic Sea-Volga, which are only navigable for around six months of the year due to thick winter ice.

Norway

United Kingdom

Atyrau Volgograd Rostov

Astrakhan

Italy

Istanbul

Malta

Volga-Baltic 3 700 km (April - October 2,7 m of water)

Dubai

Volga-Don 1 200 km (April - October 3,2 m of water)

The Caspian Sea: landlocked area

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Development concept General concept The scope and massive scale of the Kashagan field and its many challenges effectively ruled out using traditional development approaches: concrete or jacket platforms were not suitable due to the shallow waters and the subarctic climate. To protect the oil and gas infrastructure from drifting ice, an innovative concept was used: building artificial islands on which offshore facilities are located. Two types of islands are being constructed: small, unmanned drilling islands, and larger, manned, hub islands to house accommodation, drilling and production facilities. Hydrocarbons will travel from the drilling islands to hub islands by pipeline. The hub islands will contain processing facilities, gas injection and power generation systems. Except during the initial production phase, it is expected that about 80% of the unprocessed sour gas will be reinjected into the reservoir to boost recoverable reserves. During Phase I of the project dedicated pipelines will transport the non-reinjected sour gas and unprocessed liquid (oil and water) to the Bolashak onshore processing plant.

Kashagan development: the concept

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Located at Eskene West in Atyrau oblast, the Bolashak plant will process gas and liquids. Some of the gas from the plant will be used to generate power onsite and offshore. Oil will be exported by rail and by pipeline and sales gas will be exported by pipeline.


ISLAND A

EPC4

HUB1

EPC2 EPC3

Phase I EP development

D Island, August, 2012

Phased development Kashagan will be developed in phases. The first phase, known as the Experimental Programme or EP, is currently being executed. The EP will be followed by the Phase II development programme, and then Further Phases of Development. Collectively all phases are known as Full Field Development. It is anticipated that drilling and hub islands will be built in all phases, with development progressing from the eastern and central parts of the field to the west.

D Island, May, 2011

With its current configuration, Phase I will have a nominal oil production capacity of 370,000 bopd. This can increase to 450, 000 bopd when additional gas injection capacity becomes available. The Experimental Program is currently under construction, and subsequent phases are being planned.

D Island, May, 2010

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Technical breakthroughs and innovations 1. Transported rock placed on sea bed

The Kashagan project has been the source of several technical breakthroughs and innovations.

Artificial islands 2. Surface levelled

3. Piles driven around perimeter

4. Impermeable geotextile membrane

5. Service lines installed and covered

6. Concrete foundation slabs

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The larger artificial islands span several square kilometres and will function like offshore towns integrating a number of facilities and accommodating thousands of workers during construction. D island, also called Hub 1, is currently being built and will accommodate the offshore processing facilities of Phase I. Sand and lime extracted from quarries are ferried offshore using large barges. The islands will be built with natural limestone from Mangistau in southwestern Kazakhstan. Each island is contained by a metallic perimeter. In the unlikely event of a spill, the sea and seabed are protected by an impermeable geotextile membrane deployed over the entire surface of the island.


Pre-assembled barges Barges fabricated in various parts of the world are transported to the Caspian Sea through the Volga-Don canal for assembly onshore.

Barge in place after lifting

Each facilities module, which can house everything from gas injection equipment to emergency generators, is then towed to the artificial island where it is positioned between four steel support piles, which are some 80 metres high. Once in place, the barge is hoisted by jacks, and welded in place onto the support piles. Installation is completed within 24 hours.

Laying pipes Hundreds of kilometres of large-diameter pipe will be laid between drilling islands and hub islands or between a hub island and an onshore processing plant.

After laying pipes

A special technique to trench, lay, and backfill simultaneously was developed, which reduces disruption to the seabed by limiting activity to directly above the pipe laying operation. The conventional method leaves trenches open over the three stages, which can cause harm to the environment. The new technique allows the environment to recover in a matter of weeks.

Icebreaking vessels D Island houses a fleet of ice-breaking emergency evacuation vessels referred to as ‘IBEEV’s’, which provide an emergency evacuation to a safe haven for every worker on the island. Two months later

The Ice Breaking Emergency Evacuation Vessel (IBEEV) is unique. It was developed specifically for Kashagan and in an emergency can safely take 340 people out of harm’s way, whatever the atmospheric conditions outside. Due to the shallow waters in which it operates, the IBEEV cannot function like an ordinary icebreaker which cuts through the ice. Instead the bow of the IBEEV crushes the ice in front of the vessel in order to make its way through.

IBEEV

The vessel’s powerful engines can force the vessel through up to a meter of ice while those inside can breathe a self-contained air supply.

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Technical breakthroughs and innovations Managing sulphur Processing sour gas and managing sulphur safely and effectively, especially in Phase I (during future phases it is anticipated that the majority of gas will be re-injected), is of vital importance to the project. Sour gas will be desulphured at the Bolashak plant, which will generate an average of 1.1 million tonnes of sulphur per year. The venture plans to sell all sulphur that is produced. Depending on market conditions and rolling stock, sulphur will be stored temporarily. Unlike conventional practice, it will be stored in covered conditions and isolated from the environment. Liquid sulphur will be poured into sealed containers for storage purposes, then re-melted and reformed into solid pellets prior to being sold, to avoid creating dust.

H2S sensor

Temperature sensor

Sand

Sulphur pouring

Acid run-off monitoring

Sulphur storage technique

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Blocks fully covered


Operating model To manage a project of such massive scope and complexity, an innovative operating model is needed. In January 2009, a new operating company was set up, the North Caspian Operating Company B.V. (NCOC), to oversee activities related to the North Caspian Sea Production Sharing Agreement (NCSPSA). NCOC is delegated to act on behalf of the seven shareholders in the NCSPSA. NCOC defines and steers the overall development strategy, and plans, coordinates and integrates all development activities. NCOC manages geosciences and conceptual studies, appraisal plans, early development plans, and engages stakeholders, including project partners, government bodies and the Authority.

The execution of operations is delegated to four agent companies. Agip KCO is responsible for delivery of the Experimental Programme (including drilling); Shell Development Kashagan (SDK) and Agip KCO have been delegated to deliver Phase II surface facilities of the Kashagan project. SDK will manage the Phase II Front End Engineering Design (FEED), and then planning, development and construction of the offshore parts of the project. Agip KCO is responsible for the planning, development and construction of the onshore elements; ExxonMobil Kazakhstan Inc. (EMKI) is responsible for Appraisal and Phase II drilling activities; and finally, a KMG Kashagan B.V. and Shell Kazakhstan Development B.V. (SKD) joint venture (NCPOC) will manage production operations of all phases.

PARTNERS

AUTHORITY

PROJECT DEFINITION

Phase II

Phase I

Evaluation

Concept Definition

PROJECT EXECUTION

FEED Basic Engineering

Development Onshore

PRODUCTION

Development Offshore

Drilling and drilling cluster

Shell Development Kashagan B.V.

ExxonMobil Kazakhstan Inc.

Production Operations

COMPLETED

Shell Development Kashagan B.V.

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Sustainable development Beyond the main benefits to Kazakhstan from the production of oil and gas, creating local jobs and bringing greater prosperity, activities performed under the NCSPSA offer many opportunities to sustainably develop the local and national economy. To offer other long-term benefits to the citizens of Kazakhstan and meet the longterm expectations of stakeholders, NCOC is collaborating closely with national and local authorities and with local communities. NCOC takes its social, corporate, and environmental responsibilities seriously. The Company complies with all applicable laws and regulations while fulfilling its responsibilities as Operator.

Health and Safety A sustainable industrial activity means first of all safeguarding the health and safety of personnel. NCOC and its Agent Companies treat health and safety as a top priority. No business decision is made until a rigorous health, safety, and environmental (HSE) assessment is completed. The venture has launched numerous safety initiatives, including installing safety rangers on site.

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Hub Island

Koshanai

Bautino

Waste management facilities

Protecting the environment NCOC places the utmost importance on environmental responsibility.

To anticipate potential risks, the venture regularly updates environmental impact studies and action plans and has systems and procedures to respond effectively to unplanned and undesirable events. NCOC and its Agent Companies have adopted non flaring and zero water discharge policies. All drilling cuttings are collected and transported to a cuttings and oil water treatment facility near the Bautino logistics base. Oil used for drilling mud is recovered and recycled. The venture extensively monitors the environment. It collects offshore data and analyses water and sediment chemistry and performs fish, benthos and plankton studies. Annual studies are conducted of birds and seals. A total of 20 state-of-the-art air quality monitoring stations in Atyrau oblast measure various gases and collect weather data. Baseline environmental surveys are done with outside experts and institutions. An environmental sensitivity map has been published to promote more effective management of the Caspian coastline.

Oil spill prevention and response The venture’s first priority is the safety of its people and the protection of the environment through the robust design, construction and operation of its facilities. All NCOC procedures are compliant with Kazakhstan law and good international oilfield practice and take account of drilling and production conditions in the northern part of the Caspian Sea. However, recognizing the risks inherent in the development and production of oil and gas, the venture retains a dedicated Oil Spill Response organization with facilities, equipment and trained personnel located on all offshore facilities and in both Atyrau and Bautino.

Oil spill response base in Bautino

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Sustainable development Local content NCOC is committed to developing a world-class project that maximises the use of local goods and services, while developing the skills of local people and the capacity of local companies. This strategy provides the venture with better knowledge and understanding of the local environment, helps to build better relationships with the community, and can lower costs. In the four years to 2010, the Operator conducted seminars for more than 400 local companies, helped 52 local firms take part in certification programs, and supported the startup of over 51 joint ventures. To help national companies meet the venture’s prequalification critieria for safety, and for providing goods and services competitive in price, quality, and availability, a local content development process identifies and supports local companies. From 2005 to 2010, payments for local goods and services reached US$7.0 billion. Over time, a variety of approaches and procedures will substitute foreign specialists with skilled local workers. In 2010, NCOC and its four Agent Companies employed around 4,000 people, over half of whom are citizens of Kazakhstan. More broadly, the project employed over 35,000 people, including contractors and subcontractors, of whom more than 80% are Kazakh – an outstanding ratio for this type of project. Above and beyond offering employment, NCOC is committed to expanding the local talent pool. A special projects training programme launched in 2002 selects, recruits and trains Kazakhstani graduates to staff future

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operations and to work in business support activities. The venture’s training centre in Atyrau is home to the programme, and houses 11 classrooms, electrical, instrumental, and mechanical workshops, a library, and an auditorium. A chemical laboratory in the centre is working towards meeting ISO standard 17025 to monitor air, soil, and water quality and analyse drilling fluid.


Social and Infrastructure Projects Social and Infrastructure Projects are an important part of the corporate and social responsibility of the Operator. Substantial financial resources are devoted to building social infrastructures covering education, healthcare, sport and culture as well as gas and water supply lines. Funds are equally split between Atyrau and Mangistau Oblasts. Many projects, including gasification, electrification and water supply to distant locations, construction of roads, schools, kindergartens, hospitals have been completed in Atyrau and Mangistau Oblasts. In close collaboration with the local authorities, which propose projects for implementation, NCOC focuses on long term social infrastructure projects and sustainable development of local communities.

Supporting local communities Through its donations and sponsorships programme, NCOC responds to the aspirations of local communities. So far, the venture has bought equipment and vehicles for schools and kindergartens and supported sport, education, and cultural initiatives. Financial contributions are made in a transparent manner, in accordance with the laws of the Republic of Kazakhstan and best international practice.

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Conclusion Kashagan will have a production life of decades. Over the life of the field, Kazakhstan is forecast to receive billions of dollars in revenues from the project. Kashagan also offers Kazakhstan a way of meeting crucial technical, environmental, and societal objectives. As a good corporate citizen, NCOC will face the challenges ahead, together with its Agent Companies and joint venture partners, to support the robust economic growth and sustainable development of the people and industrial base of Kazakhstan.

NCOC office, Astana

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www.ncoc.kz

ASTANA

PARIS

ATYRAU

2 Kunayev St., Left Bank of the River Ishim, 010000, Republic of Kazakhstan

Le Newton 9 place des Vosges 92 924 Paris-La Défense cedex France

Kussayin Building 6 Valikhanov Street Republic of Kazakhstan 060002

Tel.: +7 7172 35 50 01 Fax: +7 7172 59 16 41

Tel.: + 33 1 47 75 53 00 Fax: + 33 1 47 75 55 57

Tel.: +7 7122 92 39 00 Fax: +7 7122 92 22 55

® NCOC. All rights reserved.


NCOC_Corporate_Broshure_2012_en