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The Wall Street Journal: Kazakhstan Presses Eni Group For Better Terms on Oil Project

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July 31, 2007; Page A2

Kazakhstan became the latest oil-rich nation to toughen its stance toward Western investors when it accused a consortium developing one of the world’s biggest oil fields of breach of contract and said it wanted to change terms of the deal.
The move against a consortium of companies led by Italy’s Eni SpA underscores how resource nationalism, the drive by oil-producing countries to claw back control of their hydrocarbon deposits, is spreading — even to places such as Kazakhstan that have long been friendly toward foreign investors.

Kazakhstan is unlikely to go as far as Russia and Venezuela, where officials have intervened aggressively to reassert state dominance of the energy sector. Analysts said Kazakhstan’s state-owned oil and natural-gas companies still lack the experience to operate big, technically challenging fields on their own.

The move involves Kashagan, a mammoth oil field in the Caspian Sea being developed by the group led by Eni and including Exxon Mobil Corp. and ConocoPhillips of the U.S.; Royal Dutch Shell PLC of the United Kingdom and the Netherlands; France’s Total SA; Japan’s Inpex Holdings Inc.; and Kazmunaigaz, the Kazakh state oil-and-gas company.

Kazakh Prime Minister Karim Masimov warned Eni that “we consider a change in the timeline of the [Kashagan] contract a change in the contract itself.” He added, “We will respond appropriately.”

Baktykozha Izmukhambetov, the Kazakh energy minister, said Kazakhstan would seek a bigger share of profits from Kashagan as compensation for the holdup. He said the government was in talks with the Eni-led group to increase its share from 10% to 40%.

An Eni spokeswoman declined to comment on the ministers’ comments. The company said only that costs at Kashagan had risen because of changes to the euro-dollar exchange rate and increased spending on safety and the environment.

Many big projects such as Kashagan are governed by production-sharing deals that allow investors to recoup some or all of their costs before having to share production with the host country.

Write to Guy Chazan at [email protected] and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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