UPDATE: Kashagan Costs To Be Significantly Cut - KazMunaiGas

The consortium of international oil majors developing the Kashagan oil field in the Caspian Sea have decided to cut costs significantly, Kazakh state oil and gas company KazMunaiGas said Thursday.

"The global economic crisis has had a substantial impact on the global market, which will affect the [Kashagan] project participants' obligations," KazMunaiGas, or KMG, said in a statement.

"This decision is expected to significantly cut project expenditures for Kazakhstan and the Kashagan consortium members, while abiding by a development timeframe and deadline for the start of production at the [Kashagan] oil field."

Kashagan, an offshore oil field in the Kazakh part of the Caspian Sea, is being developed by the North Caspian Operating Company on behalf of a consortium consisiting of KazMunaiGas, Eni SpA (E), Exxon Mobil (XOM), Royal Dutch Shell (RDSA), Total (TOT), ConocoPhillips (COP) and Inpex Corp. (1605.TO).

The start of production at Kashagan was originally slated for 2005, but repeated delays have pushed it back to the end of 2012. Kashagan is expected to produce 1.5 million barrels of oil a day by 2019. The field has recoverable reserves of 13 billion barrels.

Rising costs for developing Kashagan triggered a major disagreement between the consortium and Kazakhstan in 2007. It was resolved by KazMunaiGas doubling its stake in the project and a change in the operatorship structure.

The Kazakh government was angered by the proposed costs soaring to $136 billion from $57 billion.

Company Web site: www.kmg.kz

-By Kadyr Toktogulov, Dow Jones Newswires; [phone], [e-mail]