For Big Oil, a Cautionary Kazakh Tale

After 11 years and $39 billion of investment, ExxonMobil, Royal Dutch Shell, Total, and their partners have yet to sell a drop of oil from what was once hyped as the biggest discovery in four decades. Centered on a man-made island in the northern Caspian Sea 70 kilometers (44 miles) from Kazakhstan’s coast, the Kashagan project is still 12 months from pumping its “first oil”—$15 billion over budget and eight years behind schedule.

The Kazakh government, a partner in the field, now wants the group to commit to an even bigger second phase, a project the companies are undecided on. (Big oil and gas projects are generally done in stages, since it takes decades to fully develop a large field.) “The biggest worry is whether the project can ever be profitable, given the huge cost escalation and delays,” says Julian Lee, a senior analyst for the Centre for Global Energy Studies in London. Julia Nanay, a senior director at PFC Energy, says the first phase should generate profits if current oil prices hold.