RPI Reports: Kazakhstan – Upstream Market Focus

The oil and gas industry of Kazakhstan has shown an unprecedented pace of growth over the last 10 years. Thus, in 2001-2012 oil production nearly doubled (from 39.3 to 79.2 million tons), while gas production increased by nearly 3.5-fold (from 11.6 to 40.1 bcm). By 2020 the country’s oil production is expected to reach 120 million tons and gas production should amount to 100 bcm. The assumed expansion of the country’s market implies great business development opportunities in this region for oilfield services companies ranging from drilling to pump services.

In 2011, according to an RPI estimate, the oilfield services market of Kazakhstan was valued at $1.89bn USD. The two most lucrative segments were the market for drilling and well workovers. The least profitable segments were seismic surveys and coiled tubing operations.

Insignificant volumes of seismic survey are due to the completion of seismic acquisition in the country’s main large-scale projects. The authors expect the seismic survey market to expand in connection with the assets of KazMunaiGas. In 2012-2016 the company intends to acquire 12,000 sq. km. of 3D seismic.

According to an RPI estimate in 2012-2020 the value of the oilfield services market in Kazakhstan increased from $1,890 to $2,620 million. The market will be growing by an average 3.3% per year. The growth trend will change depending on how the situation evolves and also the size of investments.

The main segments that will be driving expansion of the oilfield services market in 2012-2030 are as follows:
»    Production and exploration drilling will account for 34% of market growth during the above period;
»    The market for well servicing and workovers will contribute about 12% of the growth;
»    Well cementing – 10%;
»    Drilling fluids – 9%.

Key performance indicators of the oil and gas industry of Kazakhstan:
»    From 2001 to 2012 annual production of oil and gas condensate in the Republic of Kazakhstan rose from 39.9 million tons to 79.2 million tons or an average 6% per year. About 80 companies are involved in oil production in Kazakhstan, but the lion’s share (about 90%) falls to 11 subsoil users, the largest of which are:
o    JV Tengizchevroil (TCO) – 24.2 million tons in 2012, or 30.5% of the country’s total output;
o    Karachaganak Petroleum Operating (KPO) – 12.05 million tons (15.2%);
o    National company KazMunaiGas (KMG) – 7.8 million tons (9.8%).
Higher production over the past 10 years was achieved mainly on the strength of JV Tengizchevroil and Karachaganak Petroleum Operating (KPO). The other large onshore wells in Kazakhstan are mostly brownfields where production is in decline.
»    The scope of production drilling rose by an average 13% in 2005-2012 and reached 1,824,000 meters. At the same time, exploration drilling grew by an average 4% per year and reached 384,000 in 2012.
»    Compared to 2009 the well workover market of Kazakhstan expanded by 11.3% and amounted to  5,500 operations in 2011, up 0.1% on 2010. By contrast, well servicing, shrank by 2.2% and amounted to 33,500 operations.

The largest scope of onshore oilfield services are traditionally clustered in the Mangistau, Kyzylorda, Atyrau and Aktobe regions. Notably, three of these regions account for over 95% of oilfield services performed.

The Mangistau region accounts for 18% of all proven oil and condensate reserves in Kazakhstan, as the country’s oldest oil producing regions alongside Atyrau. Over 70 wells with 725 tons of recoverable crude oil and 5.2 million tons of condensate have been discovered in the Mangistau region. The region accounts for 13% of nationwide oil and condensate output or 10.4 million tons of oil and condensate. Most of the large fields in this region are in the mature stage of production, such as the Ozen field, which is operated by KMG subsidiary Ozenmunaigas. A decline in the flow rate at wells is forcing O&G producers in the region to ramp up drilling volumes and the scope of enhanced oil recovery (EOR) operations, including acid treatment and hydraulic fracturing as well as sidetracking at an oil well stock.

The Kyzylorda region accounts for 4.7% of the commercial hydrocarbon reserves of Kazakhstan. The main resource base is the Kumkol group of fields. Over the past five years, oil and gas reserves from the South Arysskoye, North Priozernoye, Sarybulak, Tuzkol, North West Kyzylikiya, North Nuraly, Doshchan, and South Karabulak have been added to the state balance of oil and gas reserves. Of the above fields, the North-West Kyzylikiya and North Nuraly have been prepared for commercial production. Other fields are at the stage of test production. Furthermore, exploration work has shown an increase in the recoverable reserves of the Kyzylikiya (up nearly two-fold) and South Kumkol fields.

The fields in the region are being developed mainly by the method of maintaining reservoir pressure by gas injection. The Kyzylorda region accounts for about 30% of the entire scope of water injection wells in the whole country.

The Atyrau region accounts for 23% of all proven oil and condensate reserves of Kazakhstan, as the country’s oldest oil producing regions alongside the Mangistau oil-producing region. Over 80 fields with 930 million tons of recoverable oil and condensate reserves have been discovered in the Atyrau region. In addition, the region accounts for 38.2% of total oil and condensate production in Kazakhstan, or 30.6 million tons of oil and condensate. The bulk of output falls to Tengizchevroil (25.8 million tons) and Embamunaigas, which is part of KazMunaiGas (2.8 million tons). Unlike the Tengiz field, the Emba field, owned by KazMunaiGas, is in the mature stage of production. A decline in the flow rate at wells is forcing KazMunaiGas to ramp up the scope of drilling and EOR operations mainly via acid treatment (in 2011, 683 bottom-hole zone treatment operations were carried out).

All in all, 25 hydrocarbon fields have been discovered in the Aktobe region. The most significant is the Zhanazhol group of fields with about 170 million tons of recoverable oil and condensate reserves.

Here, oil is produced by CNPC-Aktobemunaigas, which is developing the Zhanazhol and Kenkiyak fields, Kazakhoil Aktobe and 11 small oil companies. CNPC-Aktobemunaigas’s share accounts for 90.5% of the region’s total output. In 2011, 6.86 million tons of oil was produced or 7.8% of the nationwide total.

The main users of oilfield services in Kazakhstan-based offshore projects are as follows:
»    Zhemchuzhiny;
»    Khvalinskoye;
»    Block N;
»    Zhambyl;
»    Satpaev;
»    Isatai;
»    Makhambet and Bobek.

All of these projects are in the exploration stage, so the main demand for oilfield services falls to seismic operations, exploration drilling and well testing. Production drilling on these projects will get under way no earlier than 2017-2018, which means that demand for the relevant service (cementing, drilling fluids, bits, hydraulic fracturing, MWD/LWD, and pumping service) will not materialize until that time. Under a positive train of events the second phase of the Kashagan project would get under way in 2019-2020 and this would require 52 production wells to be drilled. This, in turn, would create sizeable demand for oilfield services in the country’s offshore projects.

As a result, the main growth in the oilfield services market can be expected to involve the onshore segment in Kazakhstan. While western companies such as Saipem, Nabors and others dominate the offshore segment, the onshore segment of the oilfield services market is divided up between Chinese, Russian and Kazakhstani service companies.

For example, in 2012 Chinese companies accounted for 27% of the total number of meters drilled, including XiBu – 13%, and Great Wall – 8%. Western companies operate mainly in the following segments: hydraulic fracturing, coiled tubing operations, and well testing. In these segments, foreign companies concentrate their business on the most expensive and technologically demanding operations, with a view to using their fleets/rigs instead of one-time cost-intensive operations.

On the whole, the oilfield services market of Kazakhstan may be said to be rapidly expanding and capable of offering a sizeable scope of work to service companies both when it comes to drilling and well workovers. As is the case in any regional market, the oilfield services market of Kazakhstan has a number of advantages and disadvantages.

The advantages are as follows:
»    Large volumes of production and exploration drilling – over 2,000,000 meters per year;
»    Large volumes of well workover and well servicing operations – over 5,000 and 35,000 operations, respectively;
»    Strong demand for enhance oil recovery (EOR) at KazMunaiGas brownfields – Ozen and Emba;
»    Active development of small and mid-sized production projects with foreign participation (Condor Petroleum, Emir Oil, Sagiz Petroleum Co, Max Petroleum PLC), which have the most open tender system for the distribution of service contracts.

The disadvantages of the oilfield services market of Kazakhstan are as follows:
»    A growing number of production companies with Chinese participation;
»    Lack of new large onshore projects, which means that market growth depends mainly on the expansion of the current large projects (Tengiz, Karachaganak) and maintenance of production levels at brownfields (Ozen, Emba).

For more information please contact Daria Ivantsova:
+7 (495) 502 5433 / 778 4597
or e-mail: Daria@rpi-inc.ru
www.rpi-research.com