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The New York Times: Report Stirs Concern Kazakh Oil Deal May Be Scuttled

Published: January 12, 2008

MOSCOW — Shares in the Italian oil company Eni dipped on Friday after a Russian news agency reported that the government of Kazakhstan was preparing to cancel a contract with a consortium led by Eni that is developing the Kashagan field, one of the world’s largest oil projects.

But an abrogation of the contract seemed unlikely given that as recently as last month the president of Kazakhstan, Nursultan Nazarbayev, said his government would not cancel the deal.

Still, the market reaction to an unconfirmed report by Russia’s Interfax news agency was an indication of the importance of the Kashagan deal to Eni and its partners, which include Exxon Mobil, Royal Dutch Shell, ConocoPhillips, Total of France and Inpex Holdings of Japan.

The news agency cited an unnamed official described as close to the talks saying Kazakhstan’s ministry of energy was “drafting the documents necessary to dissolve” the production-sharing agreement. A Kazakh government spokesman, reached by phone, neither denied nor confirmed the report.

Kazakhstan, like other oil-producing nations, is seeking a larger share of the profits in contracts negotiated before the recent run-up in oil prices. Officials had threatened to halt development at the Kashagan field, but had never suggested canceling the contract.

The Interfax report emerged two days before Mr. Nazarbayev was scheduled to meet with the chief executives of the Western oil companies in Kazakhstan’s capital, Astana. Mr. Nazarbayev himself has taken a softer tone, saying the contract should be renegotiated.

A spokeswoman for Eni, Erika Mandraffino, said the company would not respond to an anonymous statement. Eni shares dropped 0.6 percent in trading in Milan after the news, according to Bloomberg News.

The field is the largest new oil find since the discovery of Prudhoe Bay in Alaska in the 1970s, but it is technically complex to develop. The companies have tripled their estimated cost to bring it online, to a reported $137 billion, diminishing Kazakhstan’s long-term profits and angering officials.

The government began demanding a larger share of the project in July, citing delays, cost overruns and environmental damage, a tactic similar to that used successfully by Russia to extract a larger share from Shell and BP developments in Russia. In December, Kazakh officials said all members of the consortium except Exxon Mobil had agreed to cede a larger role to KazMunaiGaz, the Kazakh state oil company. and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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