* Contingency plans to cover lack of 2015 Kashagan output
* Pipeline problems mainly welding-related
* Oil and gas pipelines at Kashagan will need to be replaced
* Business as usual with Gazprom, further contract reviews
(Recast lead, added management comments on Kashagan, Gazprom)
By Stephen Jewkes and Oleg Vukmanovic
MILAN, April 29 Italian oil major Eni
is not counting on any production from Kazakhstan's huge
Kashagan oilfield this year or possibly next due to faulty
welding at the $50 billion project, its CEO designate said.
Production at Kashagan, the world's biggest oil find in 35
years, started last September but was stopped in early October
after gas leaks were found in the pipeline network.
"It's worse than we considered. We have already put in place
contingency plans to cover a possible lack of production in
2015," Claudio Descalzi told analysts in a conference call on
Tuesday after Eni reported a drop in first-quarter profits.
Descalzi, the current head of exploration and development
who is slated to take over as CEO in May, said the two gas and
oil pipelines at the plant would most likely have to be
"The problem is related to some spot hardness points on the
pipes but mainly to the welding," he said.
Recent tests in Britain, France and Italy have shown that
the pipes' carbon steel material was fit to withstand the
hostile Kashagan conditions, he added.
The Kashagan consortium is considering changing the width of
the oil and gas pipelines that run to shore from their current
28-inch diameter to 20 inches, Descalzi said, adding that it may
make them easier to fit.
He said the extra costs and the timeframe involved in
replacing the pipelines would be known in June.
The North Caspian Operating Company consortium is led by
Exxon Mobil, Royal Dutch Shell, Total
, Eni and Kazakh state oil firm KazMunaiGas
Saipem, an oil service company 43 percent-owned by
Eni, was involved in the laying and welding of the project's
onshore and offshore pipelines.
A spokeswoman for Saipem said the company had no comment to
make since "information on the test results is not known to us".
The field's oil is 4,200 metres (4,590 yards) below the
seabed at very high pressure, and the associated gas reaching
the surface is mixed with some of the highest concentrations of
toxic, metal-eating hydrogen sulphide (H2S) ever encountered
The possibility that Kashagan's entire oil and gas pipeline
network could be replaced was first raised by a Reuters article
earlier this month.
BUSINESS AS USUAL
Also speaking on the call with analysts, Eni's executive for
midstream operations said western sanctions against Russia had
not adversely affected its relationship with state-backed gas
export monopoly Gazprom.
"It is business as usual," Marco Alvera, Eni's midstream
But he said Eni intended to enter a second phase of talks to
reduce the price it pays for long-term, oil-indexed deliveries
of gas from Gazprom and Sonatrach, the Algerian state-owned
Alvera said the price cut previously agreed with Gazprom no
longer reflected weak market conditions at Italy's gas trading
hub, the PSV, where price levels had dropped due to poor demand.
A second round is needed now to reduce long-term prices in
line with freely traded hub levels, he said.
Earlier on Tuesday, Eni confirmed a flat oil and gas
production outlook for the year after a 14.3 percent fall in
Adjusted net profit was 1.19 billion euros ($1.6 billion),
impacted by a lower oil price and stronger dollar, in line with
the 1.2 billion euros expected on average by six analysts polled
Earlier this month, the Italian government designated
Descalzi to take over as CEO from Paolo Scaroni in May.
Descalzi will need to safeguard Italy's gas supply by
maintaining good relations with Russia while exploring new
drilling frontiers in Africa and Asia.
Recent tensions between Russia and western governments over
its seizure of Crimea have revived fears across Europe about the
security of Russian energy supplies. Eni is Gazprom's biggest
European gas client.
(Reporting by Stephen Jewkes; editing by Agnieszka Flak and