Maybe Exxon Investors Are Waiting for Godot

Exxon Mobil Corp. (NYSE:XOM) has been waiting for more than a decade for Kazakhstan’s Kashagan oil field to start producing oil. The companies besides Exxon backing the project include Eni SpA (NYSE:E) and Dutch Royal Shell (NYSE:RDSA)(NYSE:RDSB). All together, $30 billion has been spent. A start-up date in March that Eni predicted last year has been passed. Exxon investors cannot help but feel a little like the characters in Samuel Beckett’s play Waiting for Godot–endlessly waiting in vain for something that may never come but being promised it will the next day, day after day, to their own detriment.

The Wall Street Journal notes that delays past October 1st of this year will open up Exxon the other project backers to millions of dollars in fines from the Kazakh government, in addition to the fines already imposed for missing previous deadlines. The Khazakh government is growing impatient and it is reported that the government could make it difficult for the companies involved to make more than a marginal profit. Kashagan is one of the largest untapped oil fields in the world.

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Last month, June was stated as the date–by Eni CEO Paol Scaroni–for the oil to start flowing. The North Caspian Operating Company BV (NASDAQ:NCOC) represents all the oil companies, including Exxon, that are involved in the Kashagan venture. A spokesperson for the operating company said “we are confident that we will deliver oil in the course of this year” but no specific date has been set yet.

The Khazhk state oil company involved in the Kashagan oil field–KazMunaiGas (KMG)–says it may take until 2014 until a significant amount of oil starts flowing. KMG owns nearly 20 percent of Kashagan. Cold weather, difficulty supplying the oil operations, and friction with the Khazhk government are all contributing factors to the delays. The NCOC says that the biggest cause of the delays is the complexity of drilling for Kashagan’s oil and caution on the part of the oil companies to avoid gas and oil leaks.

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The website setup by the NCOC notes that “The Kashagan reservoir is located 4,200 meters below the seabed and is highly pressured (770 bar of initial pressure),” and that the part of the Caspian Sea where Kashagan is located “is a very sensitive environmental area with abundant and diverse fauna and flora, including a number of endemic species.” The offshore facilities for extracting the oil from Kashagan are being built on artificial islands. The NCOC says that the project is “one of the largest and most complex industrial projects” in development anywhere in the world.

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