The Wall Street Journal: Kazakh Oil-Field Deal Is Closer

By KADYR TOKTOGULOV
December 3, 2007; Page A16

ALMATY, Kazakhstan — All but one member of a consortium developing the giant Kashagan oil field have agreed to transfer part of their stakes to Kazakh state-run oil-and-gas company JSC NC KazMunaiGaz, a move that could help resolve a long-running dispute with the government.

The consortium, led by Italy’s Eni SpA, has been embroiled for months in a disagreement over rising costs and delayed production at the field. With 13 billion barrels of recoverable reserves, Kashagan is one of the largest oil finds of the past 30 years.

The government has demanded “adequate compensation” and an increased role for KazMunaiGaz in the consortium. The two sides had been negotiating a solution, but missed a Friday deadline because of widely differing views on how much compensation should be paid to Kazakh authorities. On Saturday, KazMunaiGaz said in a statement that the parties had agreed to a new framework and expected to reach an agreement by Dec. 20.

“In accordance with the new memorandum, all consortium members but one agreed in principle to transfer part of their stakes to KazMunaiGaz to increase its stake to the level of other major [consortium] members,” it said.

Eni, Kashagan’s operator and Italy’s biggest oil-and-natural-gas company by volume, holds an 18.5% stake in the development consortium, the same as Exxon Mobil Corp., Royal Dutch Shell PLC and Total SA. ConocoPhillips holds 9.3%, while Japan’s Inpex Holdings Inc. and KazMunaiGaz each own 8.3%.

The Kazakh company didn’t specify which company refused to transfer part of its stake. However, a person familiar with the negotiations said that Exxon had declined to sign off. Exxon has been among the most vocal members of the consortium in expressing its unhappiness with how Eni has operated the project. An Exxon spokesman declined to comment.

The government has been angry with Eni over costs, which have risen to more than $130 billion from forecasts of $56 billion. Production is now seen beginning in the third quarter of 2010, rather than in 2008. The original start-up deadline was 2005.

The government’s assertiveness in demanding a new deal with the consortium turned Kashagan into a symbol of the increasingly aggressive stance taken by oil-producing countries in a climate of soaring prices for crude. Russia and Venezuela have also demanded more stringent terms from foreign investors, and in some cases driven them out of projects altogether. Earlier this year, Kazakh lawmakers passed legislation allowing the government to cancel natural-resource contracts deemed harmful to the nation’s strategic interests.

—Gabriel Kahn in Rome and Melanie Trottman in Dallas contributed to this article.

Write to Kadyr Toktogulov at [email protected]

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