Daily Telegraph: Kazakhstan holds out for compensation

By Russell Hotten
Last Updated: 2:25am GMT 01/12/2007

Kazakhstan is demanding about $7bn (£3.5bn) in compensation from a group of Western oil companies including Eni and Royal Dutch Shell for delays at the giant Kashagan oilfield.

Talks to agree a compensation deal by a deadline of last night are thought to have broken up without conclusion. The Caspian Sea oilfield is among the biggest finds in 30 years and oil companies are desperate to get their hands on some of the crude to replenish reserves.

But the Kazakh government, angry that delays and increasing costs mean a loss of revenues, wants the Eni-led consortium to pay up. Earlier this year Kazakhstan’s deputy finance minister Daulet Yergozhin said that the government wanted $10bn in compensation, but the figure has been reduced as negotiators from both sides edged towards an agreement.

Representatives from the consortium were in the Kazakh capital Astana this week to conclude talks, but a source said the team flew out yesterday without a deal. Earlier this month there was speculation that America’s ExxonMobil might replace Eni as the project leader, in what would be a big blow for the Italian company. America’s energy secretary, Samuel Bodman, was said to have held talks in Rome with the Kazakh energy minister, Sauat Mynbayev, when he promised technology and financial support if Exxon replaced Eni.

Last night a spokesman for the US Department of Energy said the future of Kashagan was an internal matter for Kazakhstan. The oilfield is key to the country’s ambitious plans to triple oil output by 2017. It is due to begin pumping in 2010, five years behind the original start date. The oilfield’s costs have soared from $57bn to $136bn, which the consortium blames on unforeseen complications.

Meanwhile, the country has piled more pressure on investors in the Central Asian state by proposing a new oil production tax. Mr Yergozhin said yesterday that the tax was likely to come into force in 2009 and would be based on output and world oil prices instead of on export volumes.

The tax would also apply to companies working within production sharing agreements, which had been exempt. “Everyone’s reaction will be predictably negative,” he told Reuters yesterday.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/01/cnkaz101.xml

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