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The Wall Street Journal: Consortium Inks Preliminary Deal In Oil Field Dispute with Kazakhstan

December 1, 2007 10:09 a.m.

The consortium of Western companies developing the Kashagan oil field in the Caspian Sea said Saturday it signed a memorandum of understanding with the government of Kazakhstan. The agreement outlines a settlement of the dispute over rising costs and delays in the start of production at the massive oil field. Dec. 20 is the deadline to finalize the terms.

In a statement, the consortium — which is being led by Italian oil and natural gas company ENI SpA — said it achieved “good” progress in the negotiations with the authorities of the Central Asian country through “open and constructive dialogue.”

Recent reports on those discussions had indicated that they were bogged down over a multibillion-dollar fine Kazakhstan wanted to impose on the consortium. People familiar with the matter said Kazakhstan was demanding $7 billion in compensation for holdups to the project, while the consortium was prepared to pay no more than $4 billion.

Kashagan was the world’s largest oil find in 30 years when it was discovered in 2000. But getting oil out of the field in the northern Caspian sea has proven harder and costlier than expected. And the standoff between Kazakhstan and the consortium has cast a shadow over the future of an oil field that is seen as crucial to world energy needs in a time of tight supplies and rising demand.

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