Shell Quits Kazakh Oil Projects After Judging Them Uneconomic

Shell employee in hard hat
Callaghan O'Hare/Bloomberg

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Royal Dutch Shell Plc abandoned two oil projects off Kazakhstan after stubbornly high costs made them uneconomic.

Shell has exited the Khazar field, while North Caspian Operating Co. — a joint venture including Shell — has quit the Kalamkas-Sea project, according to TOO PSA, an entity run by the Kazakh Energy Ministry. The retreat from the fields, both in the Kashagan area, reflects an industrywide push to cut break-even costs as megaprojects give way to smaller endeavors with quicker returns.

“Our partners’ decision is related to low profitability of these projects amid high capital expenditures,” TOO PSA said in a statement. Shell declined to comment.

The fields in the Caspian Sea had seemed like an obvious fit for Shell, which is among companies already pumping oil from the giant Kashagan complex. But that project proved challenging to get off the ground, costing Shell and its partners more than $50 billion as they struggled against extremes of hot and cold, as well as toxic hydrogen-sulfide gas.

Kazakhstan may seek new investors to develop the Kalamkas-Sea site, the Energy Ministry said. If the remaining partners in the Khazar field also decide to exit, Kazakhstan may seek other investors there too.

Khazar is part of the Zhemchuzhiny offshore development, where state-owned KazMunayGas National Co. and Oman Oil Co. work with Shell. The Anglo-Dutch oil major has already invested $900 million in the field, according to the ministry.

No one at Oman Oil could be reached for comment.

North Caspian Operating Co. runs both the Kashagan and Kalamkas-Sea projects. Other partners in NCOC include Italy’s Eni SpA, KazMunayGas, Exxon Mobil Corp., Total SA and China National Petroleum Corp. The companies have worked hard to reduce costs at Kalamkas-Sea, but the economics remain marginal, people familiar with the matter said in September.

Kazakhstan has said it expects international oil companies to invest more than $5 billion by 2025 in new developments, mostly in Kalamkas-Sea and Khazar. Yet the government has a history of disputes with foreign investors over revenue, taxes and cost-sharing at the country’s energy projects.

With assistance from Kelly Gilblom and Bruce Stanley.

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