Long Forgotten ‘Cash All Gone’ Project Set To Join The Oil Market Soon

There are around 50 companies in Singapore’s stock market that belong to the oil and gas industry. These include multi-billion dollar firms such as Sembcorp Marine Ltd (SGX: S51) and Keppel Corporation Limited (SGX: BN4).

As these companies are exposed to oil prices, current or prospective investors of the companies in question may want to keep an eye on notable developments in the oil and gas industry.

One such development is the possible re-emergence of a long forgotten large supply of oil which should have been cancelled but somehow endured.

Discovered in 2000, Kashagan is a major oilfield located in the territorial waters of Kazakhstan that has been besieged by problems.

In October 2014, The Economist reported in an article that Kashagan had a budget of US$13 billion but eventually cost US$43 billion. Oil majors such as Exxon Mobil and Royal Dutch Shell were part of a consortium that had invested in it.

The article mentioned other unfortunate things about the oilfield as well.

For instance, the oilfield was eight years behind schedule when it first started pumping out fuel in 2013. But then, production had to be suspended after only a few weeks when poisonous gas started leaking from the oilfield. It was stated in the article that Kazakhstan’s government thought the project wouldn’t restart “until at least 2016.”

The Economist also mentioned that Kashagan had a name that sounded like “cash all gone.” Given the circumstances surrounding the oilfield, it seemed like an apt nickname.

There’s more on Kashagan. Last week, Bloomberg reported that the oilfield is expected to start gushing oil this October and that it has taken over US$50 billion for the field’s investors to bring it to the “verge of production.” So yes, more billions were poured in since 2013.

When Kashagan was launched, it was expected to produce 1.2 million barrels of oil per day. But, the Bloomberg piece mentioned that its investors expect a daily production rate of only 370,000 barrels by October 2017. Consulting firm Wood Mackenzie is way less optimistic – it thinks Kashagan will only pump out 154,000 barrels of oil a day.

But in any case, the Kashagan oilfield is likely to start production in the near future after enduring years of problems and delays – and its re-emergence has been a game changer in the oil & gas space.

Kashagan’s imminent production had caused OPEC (Organisation of Petroleum Exporting Countries) to increase its non-OPEC supply forecast for 2017 by 350,000 barrels a day. The same factor also led the International Energy Agency to increase its own non-OPEC supply estimate for 2017 by 380,000 barrels a day.

So, it would seem that a long forgotten project is now tipping the balance scales in the global oil and gas industry. Another point to note is the decision by some oil majors to continue investing in Kashagan after U$43 billion had already been sunk in for what should have been a US$13 billion project. Could it be a case of the sunk-cost behavioural bias at work?

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat does not own shares in any companies mentioned.