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sympatico.msn: Kazakhstan wants $7 billion for Kashagan delays

November 30, 2007

ASTANA (Reuters) – Kazakhstan demanded $7 billion in compensation from an Eni-led consortium on Friday for delays in developing the huge Kashagan oilfield, a source close to the talks said as a deadline for a settlement was hours away.

Kazakhstan has set the November 30 deadline for its negotiations with the group to resolve a long-running dispute over cost overruns and production delays at the Caspian Sea oilfield, but some officials have said talks may last longer.

“(We demand) more than $7 billion. That’s for the delays,” said the source, who declined to be identified.

Eni had no immediate comment. Kazakhstan had previously demanded more than $10 billion, according to other sources.

Kazakhstan heaped further pressure on Western investors on Friday as Deputy Finance Minister Daulet Yergozhin announced it planned to introduce a new oil production tax to boost budget revenues, probably starting in 2009.

Kashagan, with its estimated 38 billion barrels of oil in place, lies at the heart of Kazakhstan’s plans to triple its crude output by 2017 as the former Soviet state fast emerges as a new source of non-OPEC oil.

But its development has been plagued by cost overruns and delays which have irked Kazakhstan. It is now due to start production in 2010, instead of 2005 originally. Its costs have escalated from $57 billion to $136 billion.

Speaking earlier in the capital Astana, Yergozhin said a high-profile consortium delegation was in the Kazakh capital on Friday to discuss the future of the world’s biggest oil find in three decades.

“We are continuing our talks. November 30 is not over yet,” he said. “I think we still have time. They are still here. … We are discussing many issues.”


Officials have said, however, that talks might continue until the end of the year.
Sources close to the deal have told Reuters that one of the consortium members considered pulling out altogether from the complicated project.

Yergozhin said Kazakhstan was discussing a possible scheme to secure a share of profit from Kashagan earlier than planned and still wanted Kazakh national oil firm KazMunaiGas to be co-operator of the field, currently managed by ENI.

“We’ve said that KazMunaiGas should be co-operator,” he said. “Kazakhstan cannot choose the operator unilaterally. The operator is chosen by all consortium companies.”
Asked whether they have proposed to change the operator, he said: “The consortium has not officially proposed anyone.”

Kazakhstan has accused Eni and its partners — Royal Dutch Shell Plc, Exxon Mobil Corp, Total, Conoco Phillips and Japan’s Inpex Holdings Inc — of ecological and other violations at the Kashagan field.

Kazakhstan put further pressure on the Eni-led group and alarmed other investors in the oil and gas business by passing legislation allowing the government to break contracts with foreign companies.

(additional reporting by Milan bureau)
(Writing by Maria Golovnina, editing by Anthony Barker)

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1 Comment on “sympatico.msn: Kazakhstan wants $7 billion for Kashagan delays”

  1. #1 Steve LeVine
    on Dec 1st, 2007 at 12:11

    One assumes that the sides will split the difference on the penalty. But how will they reach agreement on Kazakhstan’s demand for a bigger share of the field, plus earlier and greater payments from oil sales once they start? That is the harder nut to crack, I would think.

    Steve LeVine, author
    The Oil and the Glory

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