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Financial Times: Kazakhstan oil

Published: January 15 2008 02:00 | Last updated: January 15 2008 02:00

It can be hard to pick out the loser when both sides emerge from a dispute wreathed in smiles and claiming victory. But in the resolution to the set-to over the giant Kashagan oilfield in Kazakhstan, there really is something for everyone.

The international majors are giving up equity in the development of the field to KazMunaiGaz, the state-owned operator. In return, the group – led by Eni, ExxonMobil, Royal Dutch Shell and Total – will receive compensation of about $1.8bn. According to Lehman Brothers, this reflects a 15 per cent discount to the project’s net present value, assuming a long-run oil price of $60 a barrel.

For the majors, it is good news of sorts. It is better to have a smaller slice of a project that has full state support than a bigger one threatened at every turn. The overall effect is a loss of value of about $1.3bn for each. On that basis, the impact will be greatest at Eni, at about 1 per cent of its market capitalisation. On the other hand, resolving the uncertainty over Kashagan should provide some relief.

As for Kazakhstan, its demand for a bigger share is entirely in line with global trends. The original agreement of 1997 reflected the risk and rewards of the time – oil at $14 a barrel, and Kazakhstan needing foreign money and expertise.

Unlike some previous episodes of resource nationalism, this one at least upheld the principle that compensation should be paid to the majors. Lengthy delays in the courts would have been a disaster for Kazakhstan – Kashagan, with at least 13bn barrels of recoverable reserves, is the country’s ticket to the club of top 10 global oil producers. With that, and membership of the World Trade Organisation in the balance, a quick, mutually acceptable settlement makes sense.

Copyright The Financial Times Limited 2008

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