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Nursultan Nazarbayev ended the international conflict around the Kashagan oil field

Kazakhstan yesterday put an end to the conflict with foreign investors led by Eni , who are developing the Kashagan oil field. The state agreed with the project participants to double the share of Kazmunaigas - from the current 8.33% to 16.81% - by proportionally reducing their shares. The Minister of Energy and Mineral Resources of Kazakhstan, Sauat Mynbaev, told reporters about this yesterday. In addition, according to him, the state will receive compensation for the delay in the start of production at the field: “We talked about possible cash flows in favor of the Republic of Kazakhstan. The amount of cash flows will be about $5 billion. The structure of $5 billion includes bonuses for delays and royalties,” - said Mr. Mynbaev. In the last days of last year, sources in Astana claimed that the fine would be up to $4 billion, although in the fall a level of $10 billion was not excluded. The American Exxon openly opposed this whole scheme, but how did it managed to persuade to sign the agreement, it was not reported yesterday.

Kashagan (recoverable oil reserves 1-1.2 billion tons) is being developed on the basis of a production sharing agreement by the Agip KSO consortium. It includes Eni (the project operator), Total, ExxonMobil and Shell (they own 18.52% each), ConocoPhillips (9.26%), Inpex and Kazmunaigas (8.33% each). According to the agreement, after the start of production, Kazakhstan is obliged to compensate the consortium for the costs of developing the field from its profitable products. The conflict between Eni and the government of Kazakhstan escalated six months ago, after the operator company presented a new program for developing the field: the date for the start of commercial oil production was postponed from 2008 to 2010, and the cost estimate was increased from 57 billion to 136 billion dollars. This caused a sharp criticism from Astana, which hoped, with the help of Kashagan, to gain a foothold in the European market as one of the main suppliers of raw materials by 2015: oil from this field would be supplied to the Baku-Ceyhan pipeline. In August, the Kazakh government organized several unscheduled inspections of the project, which resulted in Eni being charged with everything from tax evasion to fire safety violations.

However, it was clear that all these measures were aimed at realizing the intention of Kazakhstan, as a raw material state, to improve its own position in the project. This is exactly how Russia behaved when it set a goal to achieve control over the Sakhalin-2 project, which until the end of 2006 was implemented exclusively by foreign participants. The foreigners were ready to give in, but Exxon opposed it, causing the negotiations to drag on. Project participants signed memorandums of intent, but things did not move forward. The deadline for the end of negotiations was set for January 11, and then moved to “after the weekend.” Over the weekend, various government sources told news agencies that Kazakhstan intends to completely break the PSA (amendments to legislation adopted in the fall gave the government this right). It cannot be ruled out that this was pressure on Exxon. As a result, new agreements were announced yesterday.

The increase in Kazmunaigas’s share in the project was declared as follows: “We agreed that the price for the purchased share will be $1.78 billion plus interest that will be accrued on this amount until payment,” Interfax quotes Mr. Mynbaev’s statement on press conferences. “The payment will be made after the start of oil production in three tranches.” Thus, foreign project participants received an incentive to speed up work. In addition, according to him, now the project operators will be all Agip KSR participants, and not Eni alone. “Strictly speaking, the operator is changing,” the minister explained. “A new operating company will be created by all participants in the consortium, but Eni will be responsible for bringing the pilot stage to completion, but under the control of the new operating company... The parties agreed that a new operating model will be implemented. It involves the creation of a new operating company with the participation of all existing consortium participants with a significantly increased role of the national company. Under this operating company, Agip KCO will continue to complete the pilot phase of the project. How the functions of the various participants will be distributed in the future. This is the subject of further negotiations without any fundamentally controversial issues. This is subject to clarification until May.”

In turn, the President of Kazakhstan Nursultan Nazarbayev, in whose presence the new agreement was signed yesterday, said that now “the balance of justice has been restored.” “It’s good that as a result of such a compromise we remain friends, partners and will work together,” he addressed representatives of foreign oil companies. -- As a result of many rounds of difficult negotiations, the Kazakh side defended its interests. Kazmunaigas will double its share in the project, which will lead to doubling profits in the future. I think this is good news for our country. Kazmunaigas is becoming a large company by the standards of the global oil community and will be able to attract an even larger volume of investment. It was very important."

As Mr. Mynbaev said, due to the fact that the negotiations were delayed, production at Kashagan was once again postponed - for another year, until 2011.

Nikolay GORELOV