Kazakh Govt Aims For BG’s Stake In Kashagan

The Wall Street Journal: Kazakh Govt Aims For BG’s Stake In Kashagan

DOW JONES NEWSWIRES

June 11, 2004 12:20 p.m.

Posted 12 June 04

By Mark Long

Of DOW JONES NEWSWIRES

LONDON — The delayed development of Kazakhstan’s giant Kashagan oil field in the Caspian Sea appears Friday to have hit another snag, with the Kazakh government reportedly aiming to snap up a stake in the project.

The U.K.’s BG Group (BRG) unexpectedly said Friday in a press release that the Kazakh government has claimed it has the right and intention to buy BG’s 16.67% stake, which is due to be absorbed by other partners in the project – Total (12027.FR), Eni (E), Royal Dutch/Shell (RD, SC), ExxonMobil (XOM), ConocoPhillips (COP).

No one in the Kazakh government could be reached immediately for comment.

BG originally agreed to sell its stake to Chinese oil producers Sinopec (SNP) and China National Offshore Oil Corp., or CNOOC, in March 2003 for a total of $1.23 billion.

But all the other partners in the Eni-operated project – except for Japan’s Inpex – exercised their contractual right to preempt the sale.

Officials with the project’s partner companies said they were concerned about the delay in finalizing the deal, which they had hoped to have wrapped up already.

Shell ‘s ousted head of Exploration and Production, Walter van de Vijver, told Dow Jones Newswires in February that he expected the deal to be finalized in the first quarter, boosting the company’s stake in Kashagan to 20.37% from 16.67%.

A spokesman for Shell in London said Friday that the company was aware of the Kazakh government’s desire to buy BG’s stake. He declined to elaborate further, other than to say that Shell continues to “work with BG, other partners and the government to resolve the issue.”

“The delay in concluding the BG equity assignment to the equity partners as a result of the Kazakh government’s position is a concern to ExxonMobil,” said Bob Davis, a spokesman for the U.S. oil giant.

A spokeswoman for Total in Paris said her company too was worried about the delay.

Kashagan’s operator, Eni, declined to comment, but a source at the company told Dow Jones Newswires that the company “is waiting for a decision from the Kazakh government” on the equity transfer. The source wouldn’t be drawn further.

Bruce Evers, an analyst with Investec Securities in London, said the immediate impact of Friday’s disclosure on the involved companies is scant.

However, “the worrying part is: is this setting a dangerous precedent? They’ve (the government) tended to leave the companies alone,” Evers said.

The government’s new stance is only the latest stumbling block to the massive project, which is set to start production three years later than planned, in 2008.

The consortium will pay a $150 million penalty to the government to make up for the delay.

The Kashagan field is one of the biggest oil finds in recent decades and is expected to ultimately reach peak production of 1.2 million barrels a day by 2018.

Kashagan’s recoverable reserves are estimated at between nine and 13 billion barrels.

Company Web site: http://www.bg-group.com

-By Mark Long; Dow Jones Newswires; +44 (0)20 7842 9356; [email protected]

(David Gauthier-Villars in Paris and Vittorio Alessio in Rome contributed to this report.)

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