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Financial Times: Kazakhstan in threat over Eni oil licence

By Catherine Belton in Moscow and Ed Crooks in London
Published: August 22 2007 03:00 | Last updated: August 22 2007 03:00

Kazakhstan yesterday threatened to revoke the licence of a consortium led by Italy’s Eni to develop the vast offshore Kashagan oil field over environmental violations, stepping up the pressure as it seeks a review of the project’s terms.

Just one day after Eni and the Kazakh government began talks on the future of the project, Nurlan Isakov, the country’s environment minister, said the work of the Agip KCO consortium, which also includes Shell, Exxon Mobil and ConocoPhillips, could be stopped due to environmental concerns.

“If the obligations Agip has taken upon themselves are not complied with, we are by law obliged to recall their permit because further operations will cause more ecological damage,” Mr Isakov said. “Work at Kashagan may be stopped altogether.”

Eni has already faced government threats that the terms of its production sharing agreement to develop the field could be changed in favour of the government.

The Caspian Sea project, which is one of the biggest in the world, has been dogged by delays, angering the Kazakh government. Analysts said the warning came as the government seeks to tighten its grip over the energy sector.

A source close to the consortium said it was “quite relaxed” about its environmental performance, because it had followed all the required procedures correctly, and there did not appear to be any substantial evidence of violations.

The consortium believes the complaints raised by the Kazakh authorities are intended to raise the pressure on the group in talks over Kashagan contract.

It pointed out that KazMunaiGaz, the Kazakh national oil company, was a member of the consortium, so “there should not be any surprises”.

Paolo Scaroni, the chief executive of Eni, is likely to go to Kazakhstan for talks next week. But the two sides are expected to take months to reach an agreement.

Analysts said yesterday’s threat was similar to one issued by the Russian government as it sought control of Royal Dutch Shell’s Sakhalin-2 oil and gas venture.

“This is a kind of Sakhalin-2 situation,” said Valery Nesterov, oil and gas analyst at Troika Dialog in Russia. “The Kazakh government will use this to change the terms in its favour. It isjust another step increasing the pressure on the consortium.”

The Kashagan field is one of the largest found in more than 30 years and could be critical for global oil supplies. Only three of the world’s 4,000 oil fields now exceed the 1.5m barrels per day production Kashagan is expected to achieve by 2019.

But it is also likely to be one of the most difficult to develop.

Copyright The Financial Times Limited 2007

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