Bloomberg: Kazakhstan May Halt Work on Eni’s Kashagan Oil Field (Update1)

By Nariman Gizitdinov

Aug. 21 (Bloomberg) — Kazakhstan may suspend work at Eni SpA’s Kashagan oil project because of ecological damage as the Caspian Sea state seeks more profit from its biggest oilfield.

“Taking into account the failure to meet the previous obligation by the company, we must withdraw the permit as the company’s work brings irreparable ecological damage,” Environment Minister Nurlan Iskakov said today at a government meeting in Astana. “We will send the necessary materials to the energy ministry to decide on the halting of work at Kashagan.”

Kazakhstan, the second-largest oil producer in the former Soviet Union, is following Venezuela and Russia in seeking better terms from international oil companies after crude prices rose to records. The Kazakh government demanded 40 percent of profit from the project last week after it claimed costs had more than doubled.

“The energy ministry must take the measures in accordance with legislation today,” Kazakh Prime Minister Karim Masimov said, according to the statement.

Kazakhstan said on July 30 that costs at the Kashagan project had more than doubled to $136 billion, prompting the government to consider revising the Italian company’s contract. Kazakhstan, the second-largest oil producer in the former Soviet Union after Russia, needs to tap the field to meet its goal of almost tripling production by 2015.

Planned Audit

“We are doing a planned audit and have the basis to believe that the Kashagan operator doesn’t meet ecological legislation,” Iskakov said, according to the statement posted on the government Web site today. “We notified the general prosecutor’s office about that.”

Last year, Russia threatened to halt parts of a $20 billion oil and gas project on Sakhalin Island on environmental grounds before the foreign oil companies running the venture, led by Shell, agreed to sell a majority holding to OAO Gazprom, Russia’s state-run gas company.

The Kazakh government said on July 30 it wants 40 percent of profits from Kashagan, compared with an original 10 percent. The cost of developing the field, which won’t start pumping oil until 2010, was previously estimated at $57 billion, according to the energy ministry.

A spokesman at Rome-based Eni wasn’t able to comment today and a spokesman for the Astana-based Kazakh energy ministry wasn’t available for comment.

Exxon Mobil Corp., a partner in Kashagan, said on Aug. 1 that it had sent engineers to Kazakhstan to advise Eni on the project. Eni, Exxon, Total SA and Royal Dutch Shell Plc all hold 18.52 percent stakes in Kashagan, while ConocoPhillips has 9.26 percent. KazMunaiGaz National Co. and Japan’s Inpex Corp. each own 8.33 percent.

To contact the reporter on this story: Nariman Gizitdinov in Almaty, through the Moscow newsroom.

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