Oil majors are quitting two projects in the Caspian Sea in Kazakhstan because of high costs and low profitability, a unit of Kazakhstan's state oil and gas firm KazMunayGas said on Monday.
Shell has decided to pull out of the Khazar field, and the North Caspian Operating Company (NCOC) consortium-of which Shell is a part-is quitting the Kalamkas project, according to Kazakhstan's energy ministry.
Shell has already invested US$900 million in the Khazar project, but has faced challenging economics amid high investments.
"Our partners' decision is based on the low profitability of these projects against the background of high capital expenditures," Reuters quoted the KazMunayGas unit as saying on Monday.
The shareholders in the North Caspian Operating Company (NCOC) are Kazakhstan's state oil and gas firm KazMunayGas, France's Total, Italy's Eni, Royal Dutch Shell, ExxonMobil, China National Petroleum Corporation (CNPC), and Japan's Inpex.
Kazakhstan had hoped that the consortium could be working with Shell on the development of the Khazar field, which is close to the giant and already producing oil field Kashagan operated by the NCOC consortium.
Related: Buffett's Big Bet On Energy
But in view of the high costs-which had also plagued the development of the Kashagan field-Shell is now reconsidering its participation in the Khazar field, as oil majors continue to look for low breakeven projects for profits and returns on investment.
At Kashagan, crude oil production started in 2016 and is currently around 400,000 bpd. This makes the Kazakh field one of the largest offshore oil fields in the world.
Kashagan has reserves of 13 billion barrels of crude and in-place resources of as much as 38 billion barrels. But its development has been challenging, mainly because of climatic and geological peculiarities, and because of cost overruns that saw the final budget more than double on the initial US$20 billion to US$50 billion.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More