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Financial Times: Jan 15 deadline for Kashagan partners

By Isabel Gorst in Baku and Ed Crooks in London and Reuters
Published: December 22 2007 00:09 | Last updated: December 24 2007 08:27

Kazakhstan and the group of oil companies led by Eni of Italy have set January 15 as the new deadline for talks over the fate of the disputed Kashagan oilfield, Kazakh energy minister Sauat Mynbayev said on Monday, adding progress is being stalled by Exxon.

Kazakhstan and the consortium of oil companies on Friday came close to resolving a dispute over the Kashagan oilfield after all the foreign partners agreed in principle to sell part of their stakes in the project to KazMunaigas, Kazakhstan’s state oil company.

The consortium has also agreed to pay the Kazakh government about $4bn to compensate for the delayed start to production and massive cost inflation at the flagship Caspian Sea oil development.

However, ExxonMobil, one of the members of the consortium with an 18.5 per cent stake, is holding out for a higher price for any shares it surrenders to KazMunaigas.

Exxon was earlier accused by Kazakhstan of blocking a settlement.

The company said in a statement that it was “not opposed” to KazMunaigas taking a larger stake in the project but said it was still working with Kazakhstan “to seek an amicable solution on the appropriate value for the equity”.

Mr Mynbayev on Monday said Kazakhstan did not like Exxon’s offer. ”Such an approach bears risks for the project,” he told reporters.

The consortium of companies working on Kashagan, which is led by Eni of Italy, issued a statement saying “significant steps” had been taken towards settlement during talks leading up to the expiry of a December 20 deadline set by Kazakhstan.

The dispute erupted in August after investors handed Kazakhstan a revised development plan for the field, postponing first production by two years until 2010 and doubling the cost of phase one to about $20bn. Separately, Kazakhstan said the full estimated cost of development had ballooned to $136bn from an earlier $57bn.

The Eni-led group has agreed that Kazakhstan is entitled to about $4bn of compensation for the setbacks, which have derailed the republic’s plan to triple oil production by 2015.

Oil company sources described earlier Kazakh media reports that Kazakhstan would demand $7bn worth of compensation as ”totally unrealistic”.

The final size of the payment will be linked to oil prices. Many observers are sceptical that the Eni-led group will be able to meet the revised 2010 schedule for start-up at the field.

With the exception of Exxon, all companies in the consortium, which also includes Total, Shell, ConocoPhillips and Inpex of Japan, have agreed a price at which they will sell their shares to KazMunaigas which is seeking to increase its 8.33 per cent stake in Kashagan.

Exxon said it and the other consortium members were “working with Kazakhstan to resolve the key issues”. It added: “ExxonMobil is not opposed to KMG increasing its equity and continues to work with Kazakhstan to seek an amicable solution on the appropriate value for the equity.”

The Eni group said a final settlement of the Kashagan dispute was expected early in 2008.
Copyright The Financial Times Limited 2007 and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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