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Shell poised to sign deal with Kazakhstan on oil joint venture

Times Online
The Times
September 20, 2008

Shell poised to sign deal with Kazakhstan on oil joint venture

Royal Dutch Shell was on the verge of sealing a deal with Kazakhstan yesterday that could lead to taking joint control of one of the world’s biggest oilfields.

The Kazakh Government revealed that it was forming a joint venture between the Anglo-Dutch oil giant and KazMunaiGas, the national oil company, to oversee crude production from the giant Kashagan field in the northern part of the Caspian Sea. Sauat Mynbayev, the Energy Minister, said that the joint venture would take control of the field in five years’ time after the initial development phase had been completed and commercial production had begun.

The field was identified in the 1990s and is believed to contain 38 billion barrels of oil, making it the largest discovery anywhere in the world for three decades.

Shell is already part of a troubled consortium of international oil companies co-operating on its development, led by Eni, of Italy. As crude prices rose last year, Kazakhstan decided to tear up the original agreement and demanded a bigger slice of the rewards, blaming spiralling costs and project delays.

Kashagan contains vast reserves of oil but is geologically complex and has presented its developers with unprecedented technical challenges. It lies in an earthquake zone, the oil is under extreme pressure and it contains high levels of deadly hydrogen sulphide gas.

Only nine billion of the 38 billion barrels of oil are believed to be recoverable. The Kazakh Government complained that costs had soared to $136 billion (£75 billion) from $57 billion, while the original 2005 production start target had been missed. Talks on the future of the project have been going on for months.

The partners, which include Inpex, of Japan, Total, of France, and Conoco Phillips and ExxonMobil, of the United States, were told that they would be awarded new roles in the project after the initial phase ends.

Shell’s emergence as the frontunner in the talks over the future of Kashagan will be seen as a significant victory for the group, which has struggled to boost oil production in recent years.

Shell declined to comment on the discussions, which it said were continuing An agreement is expected to be finalised by October 25. Eni did not return calls seeking comment.

Shell admitted yesterday that attacks on its oil installations in Nigeria would affect its earnings, but it declined to quantify production outages or the extent to which quarterly earnings might suffer.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4791001.ece

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