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Oil majors slash output to help Kazakhstan comply with OPEC+ deal

Chevron-led Tengizchevroil (TCO), operator of the giant Tengiz oilfield, said on Friday it would follow Kazakhstan'
15 May 2020
  • Chevron-led Tengizchevroil (TCO), operator of the giant Tengiz oilfield, said on Friday it would follow Kazakhstan's decree imposing production cuts.
  • "TCO, as a law-abiding company, will follow the Republic of Kazakhstan's government decree," it said.
  • On the same day, output at the Kashagan oilfield was 318,000 bpd, 17% below the first quarter daily average, according to Reuters calculations.

MOSCOW: International oil companies producing in Kazakhstan have started to make painful cuts in output, following government orders to help the country meet its commitments under a global deal to reduce supplies.

The government signed a decree on Monday to cut output from May, having pledged to reduce output by 390,000 barrels per day (bpd) this month and next under a deal with the OPEC+ group of producers aimed at reviving global oil prices.

Chevron-led Tengizchevroil (TCO), operator of the giant Tengiz oilfield, said on Friday it would follow Kazakhstan's decree imposing production cuts.

"TCO, as a law-abiding company, will follow the Republic of Kazakhstan's government decree," it said.

As of May 14, oil production at the Tengiz field was 483,000 bpd, 28% below its daily average during the first quarter of 2020.

On the same day, output at the Kashagan oilfield was 318,000 bpd, 17% below the first quarter daily average, according to Reuters calculations.

Kashagan's operator, North Caspian Oil Company (NCOC), declined to comment.

Oil majors are used to trimming output in OPEC countries such as Nigeria, but for Kazakhstan, which is not the member of the group, the development is unprecedented.

Tengiz and Kashagan together account for more than a half of Kazakhstan's oil output.

The fields were not part of previous supply cutting deals joined by Kazakhstan. But this time, the size of the planned cut meant the government needed foreign investors to join in.

Negotiations on the production curbs were tough and have been going on for weeks, including consultations with legal and finance departments, two sources familiar with the talks said.

Short notice made the cuts even more painful for NCOC and TCO shareholders, who had to revise their export plans for CPC Blend crude at the last minute.

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.

TCO has had to cancel four cargoes, and Eni one cargo loading at the end of May, while Total, CNPC and Shell will downsize several cargoes.

Cargo cancellations and changing the size of vessels may lead to additional costs for exporters as well as conflicts with buyers, traders said.

In June, CPC Blend exports will be down. The provisional loading plan shows exports of just 4.58 million tonnes, down from 5.5 million in May's revised plan.