Exxon's Kashagan Project Plagued by Cost Overruns

By Trefis 01/13/12 - 01:35 PM ESTAdd Comment Stock quotes in this article:XOM Tweet The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. More on XOM 7 Stocks Set to Rise Above $100 in 2012 Oil Prices Struggle to Reclaim $100Expect Dismal Downstream Results From Big Oil Market Activity Exxon Mobil Corporation| XOM NEW YORK (Trefis) -- Exxon Mobil(XOM) and its partners have requested the Kazakhstan government to consider raising the budget of the massive Kashagan project by over 20% to $46 billion. While the oil majors taking part in the project are willing to meet the extra cost themselves, the state energy company will have to reimburse them for their costs with its share of oil from the project after production starts. Exxon holds a 16.8% stake in the project and competitor ConocoPhillips(COP) holds an 8.4% in the project. State oil company KazMunaiGaz also has a 16.8% stake in the project and will reimburse the costs incurred by the companies from its share of oil output, according to the production sharing agreement. We have a $93 price estimate for Exxon Mobil, a 10% premium over its current stock price. Click here for our full analysis of Exxon Mobil. The Kashagan field, hailed as the largest find in the world over the last four decades, has been a major development challenge. The field is expected to produce between 370,000 to 450,000 barrels a day once the first phase starts operations. Initially budgeted at around $24 billion, delays and cost over-runs forced the costs up to $38.6 billion as firms underestimated the cost of equipment and housing workers in the Caspian region. The field holds an estimated 38 billion barrels of oil, and the government may refuse to reimburse around $6 billion of the costs claimed by the consortium of oil companies, according to a source contacted by Bloomberg.