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Tuesday 28 April 2020

Kazakhstan Close to Deal with Majors to Cut Output 22%

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MOSCOW (Reuters) — Kazakhstan is on the brink of an agreement with major oil companies operating in its Tengiz and Kashagan oil fields to cut production by 22% from May to help the country meet its commitments under a global supply pact, sources familiar with the issue said.

OPEC and its allies, including Russia and Kazakhstan (OPEC+), have agreed to a record production cut in order to limit the unprecedented overabundance of global supply in times of lockdown, in order to cope with the devastating impact of the coronavirus pandemic on demand. Kazakhstan has agreed to cut 390,000 barrels per day (bpd) of its output to roughly 1.3 mln bpd, the state’s energy ministry has said. According to two sources familiar with the details, the country plans to reduce its overall oil output by 22-23% from the average level of production in the first quarter, and has asked oil producers to cut output accordingly,.

Tengizchevroil (TCO), which operates the Tengiz field and is led by U.S. oil group Chevron, and the Kashagan field, operated by the North Caspian Operating Company (NCOC), have not been asked to take part in previous output curbing deals. This time, however, the scale of the reductions is unattainable without the foreign investors’ contribution. The two sources said both projects were close to agreeing to the reductions in output.

Chevron, which speaks for TCO, said it was “focused on safe and reliable operations and continues to produce according to the business plan approved by the company’s shareholders.”

NCOC said it “strictly adheres to the North Caspian Sea Product Sharing Agreement and any applicable laws”.

Combined production of the Tengiz and Kashagan fields was nearly 900,000 bpd in 2019, accounting for more than a half of Kazakhstan’s oil output. The fields supply all of their oil to the CPC pipeline and export it as CPC Blend crude. That means the production cuts will have a direct impact on CPC Blend exports in May, the sources said. The preliminary May loading plan for CPC Blend was set at 5.73 mln tonnes. Traders are anticipating a much lower revision.

The Kashagan consortium includes Eni, ExxonMobil, CNPC, Royal Dutch Shell, Total, Inpex and Kazakh state energy firm KazMunayGaz.

TCO is owned by Chevron, ExxonMobil, Russia’s LUKOIL and KazMunayGaz.

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