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Financial Times: Eni in Kazakhstan

Published: September 23 2007 19:27 | Last updated: September 23 2007 19:27

As much as Paolo Scaroni tries to keep investors focused on Eni’s opportunities elsewhere, talk keeps coming back to Kashagan, the giant oil field in Kazakhstan. The chief executive of Italy’s big oil company is battling to persuade the Kazakh government that delays and cost overruns at the Eni-led project need not lead to a radical rewriting of terms or, worse, the end of the road for Eni’s involvement. He has until October 22 to reach a friendly agreement or the gloves come off.

Mr Scaroni is in a tight spot. Kashagan is Eni’s biggest current development project. What’s more, this is no simple outbreak of resource nationalism from a state emboldened by high oil prices. There have been mutterings since operation of this vast project – reckoned to be the world’s most technically demanding field – was handed to Eni in 2001, ahead of other, larger majors such as Royal Dutch Shell and ExxonMobil, also members of the consortium. And every glitch puts off the day when the government begins realising its share of the project’s value – especially galling when oil prices are so high.

The worst-case scenario for Eni – losing its lead position on the project – seems remote, however. Other consortium members have tut-tutted from the sidelines but are probably reluctant to push for Eni’s removal.

The best outcome Mr Scaroni can probably hope for is a tweak to the profit-sharing agreement to allow more cash to flow to the government at an earlier stage. He will probably also have to accept a larger role in the consortium for state-controlled KazMunaiGaz. The fact he’s not alone in feeling the Kazakh authorities breathing down his neck – witness recent grumblings about a giant Chevron-led natural gas project – is only thin consolation.

Copyright The Financial Times Limited 2007

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