Kazakhstan’s Kashagan – “…the downside of Elephant Fields”
“In the beginning” (discovered in 2000), Kashagan was the most prolific oil discovery since the North Sea/Alaska fields of the late 1960s. However, as we suspect from the arduous journey to startup – high sulfur, land locked, frontier, with rudderless leadership and a corrupt resource host – the field operators probably turned to painkillers in place of champagne as the field struggled to commence production this year. With luck, the project will produce 75,000 barrels a day next year, and if I were a betting man I’d take the under. The phase 1 target is 370,000 b/d, with an interim goal in the 150-170,000 range.
How unimpressive are these results from several of the planet’s greatest oil companies? Compare $50 billion invested capital (3x initial estimates) with the enterprise values of several leading producers, each of whose output swamps Kashagan Now, Kashagan 2014, Kashagan Phase 1, and probably Kashagan Forever. The “Kashagan Oil Company” is trading at 2-4x public comps, with a bias toward the 4x
| If Kashagan were a Public Company | ||||
| Enterprise | Daily Production | EV/Daily | ||
| Value | (000 boe/day) | Output | ||
| ($$ billions) | ($1000/boed) | |||
| Anadarko | 53 | 872 | 61 | |
| EOG | 48 | 636 | 75 | |
| Apache | 45 | 721 | 62 | |
| Kashagan 2015 | 50 | 175 | 286 | |
| Kashagan 2017 | 50 | 370 | 135 | |
(Enterprise Value = Market capitalization plus Net Debt)
Of course, per barrel profitability is also important to consider, and we do not know, with certainty, what Kashagan’s cash margins will look like. Again, my bet is that they are not sufficiently better (if at all!) than those of the public companies noted above.
Nobody really knows (or is saying) how expensive Phase II (1.2 million b/d target) will be, to exploit the full 13 billion barrel field.
Next question is when, or if, or how much any operators will reflect on the table, and “impair’ the field.