Bloomberg: Kazakhstan Calls Eni’s Kashagan Plan `Unacceptable’ (Update2)

By Nariman Gizitdinov and Anthony DiPaola

Sept. 11 (Bloomberg) — Kazakhstan said Eni SpA’s development plan for Kashagan, the world’s biggest oil discovery in three decades, is “unacceptable” because it will harm the country’s economic growth by delaying profit from the project.

A government-backed study of the Eni-led group’s latest Kashagan budget found that “massive cost overruns and delayed commercial production start entail substantial degradation of the project’s major economic indicators,” the Kazakh energy ministry said in a statement today.

Eni Chief Executive Officer Paolo Scaroni met Kazakh Energy Minister Sauat Mynbayev in Kazakhstan’s capital Astana today to resolve a dispute over the development of the field, the ministry said. Scaroni will also meet Prime Minister Karim Masimov, officials said. Eni didn’t immediately comment.

International oil companies including Royal Dutch Shell Plc and Rome-based Eni are being forced to renegotiate exploration contracts with resource-rich countries demanding larger profits from surging oil prices. Crude oil prices have more than tripled since Eni was awarded the contract to develop Kashagan.

The Kazakh government is disputing a second delay in the start of production at Kashagan and an increase in development costs it says have more than doubled to $136 billion.

`Necessary Measures’

“If the company doesn’t maintain its obligations and act in accordance with the nation’s laws, we will take all necessary measures in accordance with our legislation,” Mynbayev was quoted as saying in the statement.

Eni said in February that production at the field would start two years behind schedule and that costs for the first phase would almost double to $19 billion. Eni plans to start commercial production at Kashagan in the third quarter of 2010, with output eventually reaching 1.5 million barrels a day.

The Kazakh government has threatened to replace Eni as operator of the project if the Italian company can’t start production as soon as possible and if it doesn’t make KazMunaiGaz National Co., the state energy company, joint operator, Masimov said last week.

Eni’s role in the project depends on its ability to fulfill the development contract already agreed with the government, the energy ministry said in the statement today.

To contact the reporter on this story: Nariman Gizitdinov in Almaty, through the Moscow newsroom ; Greg Walters in Moscow [email protected] ;
Anthony DiPaola in Rome at [email protected] .

Last Updated: September 11, 2007 07:51 EDT

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