Negotiations between the American oil and gas giant ExxonMobil and Kazakhstan’s national company KazMunayGas (KMG) on the possible establishment of a jointly owned venture have become one of the most talked-about developments in the global energy sector. At the center of the discussions is the large-scale expansion of Kashagan, one of the world's largest and most technically complex oil fields.

Investor interest in the undeveloped areas of this giant field opens a new chapter in the history of Caspian oil production. At the same time, it presents stakeholders with significant technological and financial challenges.

What “undeveloped” reserves are being referred to

Kashagan is being developed in stages. Current production is carried out under Phase 1 (around 400,000 barrels per day). The joint venture project between ExxonMobil and KazMunayGas targets resources that are not included in the current development plan of the North Caspian Operating Company (NCOC). These primarily refer to Phase 2 (divided into stages 2A and 2B), which aims to bring into production additional blocks and isolated reservoirs within the contract area.

In addition to the Kashagan field itself, the contract territory also includes the Aktoty, Kairan, and South-West Kashagan structures.

Kashagan’s total geological reserves are estimated at an enormous 35–38 billion barrels of oil, of which around 11–13 billion barrels are considered recoverable. A significant portion of this resource base remains undeveloped. Phase 2 is expected to increase production by an additional 310,000 barrels per day, bringing total output to a plateau of around 710,000 barrels per day.

In mid-2025, NCOC reported that cumulative production from Kashagan since the start of operations in 2016 had reached 1 billion barrels.

The reservoir lies at a depth of approximately 4,200–4,500 meters beneath the seabed. It is characterized by abnormally high reservoir pressure (over 700–800 atmospheres), requiring highly specialized wellhead equipment and ultra-strong drilling strings.

Kashagan oil is light (around 45° API), but contains a large volume of associated gas with an extremely high hydrogen sulfide (H₂S) concentration (16–19%). This makes the gas highly toxic and chemically aggressive.

To extract these “hidden” hydrocarbons, simple pumping is not sufficient. The key challenge remains the handling of massive volumes of sour associated gas. Phase 2 development will rely on two main approaches: reinjection of high-pressure raw gas back into the reservoir to maintain pressure, and gas treatment followed by transportation.

This will require large-scale new infrastructure, comparable in complexity to Phase 1. Operators will not be able to rely solely on existing facilities on Island D and the Bolashak plant. New artificial islands, dozens of additional production wells, and new multiphase subsea pipelines will be required.

However, the key difference from Phase 1 lies in a more pragmatic strategy. New sour gas volumes are expected to be supplied to upcoming and planned third-party gas processing plants (GPPs), financed by the state and other investors, with capacities of 1 billion, 2.5 billion, and 6 billion cubic meters per year. This approach will help relieve offshore facilities from excessive sulfur processing requirements.

Why ExxonMobil is taking this step

According to preliminary Bloomberg estimates, the cost of expanding Kashagan under the new joint venture could range from $50 to $70 billion.

The planned investments are expected to be directed toward the construction of new artificial offshore islands and the upgrading of existing hubs, the procurement of specialized equipment resistant to hydrogen sulfide corrosion (high-chromium and nickel alloys), the drilling of ultra-deep wells under high-pressure conditions, and the laying of infield subsea pipelines capable of withstanding the movement of a corrosive multiphase flow (a mixture of oil, gas, and water).

For the American supermajor, Kashagan is not just another asset, but an opportunity to monetize its extensive experience in managing megaprojects. ExxonMobil is a technological leader in high-pressure operations and sour gas environments.

Its flagship deepwater project today, where the company acts as operator and is rapidly increasing production in challenging offshore conditions, is the Stabroek Block in Guyana.

The company also has strong expertise in extended-reach horizontal drilling and production enhancement, developed through complex projects in the Permian Basin in the United States.

In addition, its experience in building and operating artificial islands in shallow waters for the Upper Zakum project in the UAE is directly applicable to the conditions of the Northern Caspian Sea.

ExxonMobil is the largest privately owned oil corporation in the United States, tracing its origins back to John D. Rockefeller’s Standard Oil trust.

It demonstrates strong financial stability. Its 2025 revenue amounted to $323.9 billion. Thanks to a strict cost-reduction program (with more than $15 billion saved since 2019), the corporation maintains a leading position in free cash flow generation among global oil majors. By the end of 2025, its net operating cash flow reached approximately $52 billion, enabling it to comfortably finance projects worth tens of billions of dollars.

Financial and production performance of ExxonMobil (2021–2025)

Indicator	2021	2022	2023	2024	2025
Revenue (bn $)	285.6	413.7	344.6	339.2	323.9
Net profit (bn $)	23	55.7	36	33.7	28.8
Production (million boe/day)	3.71	3.74	3.73	3.82	3.95

ExxonMobil has one of the strongest R&D bases in the industry, with advanced research centers focused on reservoir modeling, extended-reach drilling, and carbon capture and storage (CCS) technologies. The company is capable of efficiently and safely operating in reservoirs where high hydrogen sulfide content would paralyze less experienced operators.

Historically, ExxonMobil has also maintained significant lobbying influence in Washington, D.C., and actively defends its economic interests on the international stage.

In the social sphere, the company has often been criticized by climate activists for the perceived slow pace of its energy transition and its continued focus on fossil fuels. However, in recent years Exxon has increased investments in biofuels, lithium, and hydrogen energy.

Thirty years of operations and conflicts

ExxonMobil entered Kazakhstan in 1993. It holds a 25% stake in the Tengiz project and a 16.81% share in the North Caspian Project consortium developing Kashagan. The company also owns stakes in the Caspian Pipeline Consortium (CPC), which provides export routes for Kazakh oil to global markets.

The company’s track record in Kazakhstan and globally has not been without challenges. ExxonMobil has repeatedly been involved in major disputes.

Kazakh environmental authorities have on several occasions raised claims against the NCOC consortium (of which Exxon is a member), including a multibillion-dollar claim (over $5 billion) related to the open-air storage of sulfur at Kashagan. The parties have so far failed to reach a final settlement.

In addition, the government initiated arbitration claims against Kashagan shareholders totaling more than $15 billion (with some estimates reaching up to $160 billion), alleging unjustified cost inflation that is deducted from state revenues.

One of the company’s most well-known historical incidents remains the Exxon Valdez tanker accident in Alaska in 1989, which caused a major oil spill. In the 21st century, the company has also been accused in the United States of downplaying early scientific findings on climate change in order to protect its fossil fuel business.

KMG–ExxonMobil alliance

The creation of a joint venture presents both clear benefits and certain risks for Kazakhstan. A project worth $50–70 billion would act as a powerful catalyst for the national economy, generating contracts for the construction, transport, and service sectors.

New oil production would also mean higher taxes, export duties, and a larger share of profit oil for the state.

By working in a 50/50 joint venture with a U.S. major, the national company could gain direct access to unique megaproject management technologies and develop local expertise.

At the same time, routing sour gas to domestic gas processing plants could help address Kazakhstan’s gas deficit and supply feedstock to domestic industry.

However, the Northern Caspian remains a closed, shallow, and highly vulnerable ecosystem. Any expansion of drilling activities increases risks to regional biodiversity, including the Caspian seal and sturgeon populations.

The project is also heavily dependent on Western supplies of complex equipment, which in the current geopolitical environment introduces the risk of delays.

Given the history of disputes over cost recovery in Kashagan, negotiating profit and cost-sharing terms will require exceptional caution from KMG and the government to ensure Kazakhstan’s interests are fully protected.

ExxonMobil has the financial and technological capabilities to handle Phase 2 of Kashagan. Negotiations on the joint venture show that, despite past disputes, U.S. investors still view Kazakhstan as a stable and strategically important destination for long-term investment.

But can ExxonMobil become for Kashagan what Chevron is for Tengiz—and can it successfully lead a KMG partnership to the level of Tengizchevroil?

In theory and from a technological standpoint, ExxonMobil is capable of doing so. In practice, however, transforming Kashagan into a “second Tengiz” will be far more complex due to legal, geopolitical, and structural differences between the two projects.

The main reason Tengizchevroil operates relatively smoothly (aside from recent equipment issues) while Kashagan remains dispute-prone lies in the operating model.

Tengizchevroil is a single legal entity, where Chevron holds a 50% stake and acts as a strong, permanent operator. Decision-making is centralized, responsibilities are clearly defined, and the state receives dividends and taxes through a straightforward structure.

Kashagan, by contrast, is governed under a Production Sharing Agreement (PSA) through NCOC. Interests are split among five major companies (Eni, Shell, ExxonMobil, TotalEnergies, and KMG), each holding roughly equal stakes of about 16.8%. NCOC functions as a “corporate hybrid,” with rotating management among partners. Expansion projects require consensus, leading to bureaucracy, delays, and diluted accountability.

For ExxonMobil to become a full-scale operator of Kashagan in the Chevron model, the structure would need to change fundamentally. There are both economic and political conditions pointing in that direction.

The Kazakh government has openly expressed frustration with NCOC’s complex structure, which has contributed to Phase 2 delays and multi-billion-dollar arbitration disputes. The creation of a new KMG–ExxonMobil joint venture is effectively an attempt to bypass the traditional consortium structure for developing new reserves.

If such a JV is established, ExxonMobil would not operate the entire Kashagan field (Phase 1), but together with KMG it could become the operator of Phase 2 and satellite structures such as Kairan and Aktoty. This would form a compact 50/50 entity, with Exxon providing technical leadership and KMG handling administrative and governmental coordination—avoiding lengthy consensus-building with Shell, Eni, and TotalEnergies.

Full control over Kashagan would require ExxonMobil to acquire stakes from other partners. However, European majors are unlikely to exit such a large asset, and the government holds preferential rights that would likely be exercised by KMG.

If the ExxonMobil–KMG alliance gains real control over Phase 2, it could replicate the financial success of Tengizchevroil.

ExxonMobil is already deeply familiar with Tengiz, where it holds a 25% stake. The technical challenges—ultra-deep drilling, high pressure, and sour gas processing—closely mirror those at Kashagan. In many respects, Exxon could transfer proven Tengiz technologies directly to the Caspian offshore project.

With free cash flow of around $50 billion per year, ExxonMobil can comfortably finance its share of capital expenditures without liquidity constraints.

Unlike more diversified players such as Shell or Eni, ExxonMobil is currently focused on ultra-large conventional oil hubs like Guyana and the Permian Basin. Kashagan fits perfectly into this strategy of concentrating on mega-assets.

However, to avoid repeating past conflicts and to reach a level of trust comparable to Tengizchevroil, ExxonMobil would need to adjust its approach in several key areas.

The Caspian Sea is far more environmentally sensitive than the Tengiz steppe. Falling sea levels already require extensive dredging operations for vessel access. ExxonMobil would need to implement solutions that minimize ecological impact and permanently resolve the issue of sulfur handling without surface storage.

Tengizchevroil has developed a broad ecosystem of local service companies and trained thousands of Kazakh engineers. In the new JV, ExxonMobil would be expected to commit to strong local content requirements, including technology transfer in reservoir modeling, procurement of high-tech equipment from Kazakh plants, and increasing the share of Kazakh professionals in senior management to 85–90%.

The main point of contention between Kazakhstan and foreign investors remains gas utilization. The country needs affordable gas for domestic gasification and petrochemicals, while investors prefer reinjection or export at market prices. If ExxonMobil agrees to supply raw gas to new state-owned processing plants at fair but balanced terms, it would eliminate most political risks.

Becoming an exact equivalent of Chevron at Tengiz is unlikely for ExxonMobil due to the legal framework of the historic Kashagan PSA, which remains in force until 2041. However, through a new joint venture with KazMunayGas, ExxonMobil could still become the technological backbone of Kashagan. If both sides reach a pragmatic agreement and resolve long-standing disputes, Kazakhstan would receive billions in investment and higher production, while ExxonMobil would secure its role as the principal architect of Caspian oil development for decades to come.