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Reuters: Kazakhstan suspends Kashagan oilfield

Mon Aug 27, 2007 7:44 AM BST
By Raushan Nurshayeva

ASTANA (Reuters) – Kazakhstan suspended work at the huge Kashagan oilfield for at least three months on Monday, raising the stakes in the long-delayed project developed by a consortium of Western oil majors.

The project’s start-up delays and cost overruns have long irked Kazakhstan. It has threatened to revoke a permit held by an Eni-led group (ENI.MI: Quote, Profile , Research) to exploit the Caspian Sea site, the world’s biggest oil find in decades, over ecological concerns.

The dispute is reminiscent of Russia’s row with Royal Dutch Shell (RDSa.L: Quote, Profile , Research), which ended with the multinational oil firm losing control of the giant Sakhalin-2 oil project to Russia’s Gazprom (GAZP.MM: Quote, Profile , Research).

Ecology Minister Nurlan Iskakov said on Monday the suspension was due to environmental violations.

“The permit for 2007 has been suspended. That is, we are suspending work for three months on our part,” Iskakov told reporters.

“We have contacted the Energy Ministry for it to take action as the authorised body within the contract’s framework.”

Italy’s Eni and other consortium members were unavailable for comment. The energy ministry in Astana refused to comment.  

“In 2003-2005 we specified a number of offshore sites and we put forward our demands. As of today, these ecological requirements have not been fulfilled,” Iskakov said.

“That’s why we decided to carry out such an unprecedented step. I think you will hear in the nearest future what will happen next”.

Eni Chief Executive Paolo Scaroni said on Friday his company and its partners had 60 days to reach a negotiated solution for the Kashagan project.

Industry sources in Kazakhstan say some in the government are unhappy with what are now seen as overly generous terms signed with foreign companies in the 1990s, when Kazakhstan needed foreign investment to overcome a post-Soviet slump.

Kashagan’s AgipKCO consortium also includes Shell, Exxon Mobil Corp (XOM.N: Quote, Profile , Research), Total (TOTF.PA: Quote, Profile , Research), ConocoPhillips (COP.N: Quote, Profile , Research), Japan’s Inpex Holdings Inc (1605.T: Quote, NEWS , Research) and the Kazakh oil company KazMunaiGas (KMG.UL: Quote, Profile , Research).

The consortium has put off the original startup of the world’s biggest oilfield discovery in 30 years to the second half of 2010 from an original target of 2005.

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