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THE WALL STREET JOURNAL: Talks Delayed Between Kazakhs, Foreign Oil Firms

By GABRIEL KAHN
January 10, 2008; Page A10

What was supposed to be a decisive meeting scheduled for Jan. 11 to resolve the long-running dispute between the government of Kazakhstan and a consortium of foreign oil companies developing the massive Kashagan field has been postponed, according to people close to the negotiations.

The heads of six foreign oil companies are now expected to meet with Kazakh President Nursultan Nazarbayev and Prime Minister Karim Massimov no sooner than Jan. 13. The reasons for the delay weren’t immediately clear. Already, the foreign oil companies and the Kazakh government have blown through three previous deadlines. Authorities have been feuding with the oil companies over how Kazakhstan should be compensated from the Kashagan field, which holds more than 13 billion barrels of recoverable reserves and is one of the largest new finds of the past 30 years.

The decision of the powerful Kazakh president, who called the meeting, to get directly involved in the negotiations was hailed as a watershed moment that would lead to a speedy resolution. It is unclear whether this latest delay, of only two days, is an indication that hurdles remain. Costs on the Kashagan project, which is operated by Italian oil and gas giant Eni SpA, have soared beyond initial expectations, and oil, which was initially predicted to begin flowing by 2005, now isn’t expected before 2011.

Kazakh authorities had demanded that the foreign oil companies sell a portion of their stakes to KazMunaiGaz, the state oil-and-gas company, which already holds an 8.3% interest in Kashagan. While five of the foreign companies have been willing to accept the Kazakh government’s terms, ExxonMobil Co., which holds an 18.5% stake in the project, has insisted that it be able to negotiate on price, according to people close to the negotiations.

“ExxonMobil is not opposed to KMG increasing its equity and continues to work with the Republic of Kazakhstan to seek an amicable solution on the fair value for the equity,” said a company spokesman.

In addition to Exxon, Royal Dutch Shell PLC, Eni and Total SA also hold 18.5% stakes each, while ConocoPhillips has 9.3%, and Inpex has 8.3%.

Write to Gabriel Kahn at [email protected]

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