Saipem Bags Kashagan Contract

Italian oil service company Saipem said on Friday it had won a contract to lay replacement pipelines at the giant Kashagan field in Kazakhstan, worth around $1.8 billion.

Last month sources with knowledge of the matter told Reuters Saipem was in pole position to win the pipeline contract which could be worth up to $2 billion.

In a statement on Friday Saipem said the North Caspian Operating Company had awarded Saipem the contract for the construction of two 95-kilometre pipelines.

"The construction will be completed by the end of 2016," it said.

Saipem, 43 percent owned by Italy's national oil company Eni , won a contract back in 2004 to lay the original pipelines for the $50 billion Kashagan development project.

First production at the field, already plagued by delays and cost overruns, finally started in September 2013 but was halted just weeks later after the discovery of gas leaks caused by stress fractures.

Kashagan's oil is 4,200 metres below the seabed at very high pressure and associated gas reaching the surface was found to have mixed with some of the highest concentrations of toxic, metal-eating hydrogen sulphide ever encountered.

As a result Saipem said the two new pipelines will be made of carbon steel internally clad with a corrosion-resistant alloy layer.

"Works to mend that technological mishap which occurred in 2013 are planned to be completed in December 2016," Kazakh Energy Minister Vladimir Shkolnik was cited as saying by local media.

"Production costs at such large-scale projects as Karachaganak and Tengiz are pretty low, and we are confident that Kashagan's will be the same," he added.

However, Kazakh officials have previously said that actual production from the field is not expected to resume before the second half of next year.

Saipem has lost around 10 billion euros of its market value over the past two years after two profit warnings, a corruption investigation in Algeria and a grim industry outlook.

In December its shares fell sharply when Russia's South Stream gas pipeline project it had won contracts for was scrapped.

However, according to offical documents of the Trans Adriatic Pipeline (TAP) Saipem has now pre-qualified for a tender to lay pipelines for a separate project that will bring Azeri gas to Italy.

By Stephen Jewkes