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Financial Times: Eni loses grip of Kazakh oilfield

By Isabel Gorst in Baku and Ed Crooks in London
Published: January 15 2008 02:00 | Last updated: January 15 2008 02:00

Eni, the Italian oil company, is to lose operating control of the giant Kashagan oilfield, the crown jewel of its upstream portfolio, as Kazakhstan asserts greater control over the troubled oil development.

The settlement between an Eni-led oil consortium and Kazakhstan over production delays and ballooning costs at Kashagan, finalised on Sunday night, allows Eni to remain operator of the first, experimental phase of the project scheduled to produce oil in 2011.

But a new operating company representing other shareholders in the Eni consortium, including ExxonMobil, Royal Dutch Shell and Total, will be established to manage all subsequent stages of the development, which is expected eventually to yield more than 1.5m barrels of oil a day.

The new entity will report to a management committee led by KazMunaigas, Kazakhstan’s state oil company.

Maksat Edenov, the first vice-president of KMG, said, “At last Kazakhstan has won recognition and will enjoy equal treatment to other consortium partners. It is up to us to keep up the pace of the development and prove ourselves equal to everyone else.”

Nursultan Nazarbayev, the president of Kazakhstan, met the Eni-led consortium yesterday to approve a resolution of the dispute, which will allow KazMunaigas to double its stake in Kashagan by buying shares from the other shareholders.

The settlement framework was set out in a memorandum signed by the Eni team in London on December 20, stipulating that either all or no shareholders should surrender part of their equity to KazMunaigas.

ExxonMobil held out for compensation for diluting its stake, but capitulated at the last minute.

A Kazakh official said, “Rex Tillerson has agreed to dilute Exxon’s share by 1.7 per cent. We convinced him. There has been no deal on the side for Exxon.”

KMG will pay the companies, which also include ConocoPhillips of the US and Inpex of Japan, $1.78bn worth of oil to bring its stake in Kashagan to 16.81 per cent, equivalent to that of the largest shareholders in the consortium. The companies will also pay Kazakhstan a sum estimated by them at $2.5bn to $4.5bn, and by the Kazakhs at $5bn, over 20 years, to compensate for problems at the field.

Mr Edenov said the operating company would bring a “more focused approach, clarity and accountability” to the project.

Kazakhstan has complained about mismanagement of the Kashagan development, but has not publicly singled out Eni for blame.

Copyright The Financial Times Limited 2008

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