Shell Pauses New Kazakhstan Investments Amid Mounting Legal Disputes

London, Feb 6 (Reuters) — Shell plc said on Friday it will halt further new investments in Kazakhstan as ongoing legal battles with the Central Asian nation over cost disputes cloud the outlook for its major oilfield projects. 

Chief Executive Wael Sawan told analysts during a quarterly results briefing that while Shell still sees “potential investment opportunities in Kazakhstan,” the company will **hold off on committing new capital until there is clearer resolution of the legal issues at hand.” 

Legal Battles Strain Relations

The decision comes amid protracted disputes between Kazakhstan’s government and foreign energy companies operating key projects such as the Karachaganak and Kashagan oilfields. Astana has launched arbitration cases against consortiums including Shell and partners over billions of dollars in allegedly disputed costs, claiming that certain expenses were improperly charged under longstanding production-sharing agreements. 

Shell holds a roughly 29.25% stake in the Karachaganak Petroleum Operating consortium alongside partners including Eni, Chevron, Lukoil and state-owned KazMunayGaz. Recent rulings in international arbitration have sided with Kazakhstan’s position that some cost recovery was unjustified, potentially exposing the venture to up to $4 billion in compensation obligations — a decision currently under appeal. 

Broader Uncertainty for Foreign Partners

Industry observers say the Karachaganak outcome could influence how Kazakhstan negotiates future deals and manages foreign investment, adding an unpredictable geopolitical dimension to what were once stable energy partnerships. 

Shell’s move to pause fresh spending reflects broader risk management in an environment where legal and political friction with host governments is beginning to play an outsized role in capital allocation decisions by international oil majors.

What Comes Next

For now, Shell’s existing operations in Kazakhstan will continue, but new projects or expansions will remain on hold until there is a clearer legal and regulatory framework governing cost-recovery and revenue-sharing in the country’s energy sector.

Reporting by John Donovan

Explainer: Why Kazakhstan Is Taking Oil Majors to Arbitration

Kazakhstan’s legal disputes with international oil companies stem from long-running tensions over cost recovery, profit sharing, and state control in some of the country’s largest oil and gas projects — many of which were signed in the chaotic years following the Soviet Union’s collapse.

The Roots: 1990s Mega-Deals

In the 1990s, Kazakhstan signed production-sharing agreements (PSAs) with foreign energy companies to attract investment, technology, and expertise. These contracts — covering projects such as Karachaganak and Kashagan — allowed companies to recover costs before splitting profits with the state.

At the time, Kazakhstan had little bargaining power. The deals were generous to investors, locked in for decades, and protected by international arbitration clauses rather than Kazakh courts.

The Flashpoint: Cost Recovery

The disputes centre on what costs companies are allowed to reclaim before profits are shared.

Kazakhstan’s government argues that consortiums including Shell and Eni:

• Overstated or misclassified costs

• Charged expenses that should not qualify for recovery

• Reduced the state’s share of profits as a result

The companies deny wrongdoing, arguing that costs were incurred legitimately under the contracts and approved by regulators over many years.

Arbitration Escalates

In recent years, Kazakhstan escalated the conflict by filing international arbitration cases, including proceedings under the Energy Charter Treaty and other investment frameworks.

In the Karachaganak case, an arbitration ruling largely favoured Kazakhstan, opening the door to claims reportedly worth several billion dollars. That decision is now under appeal, but it has already shifted the balance of power.

A Broader Strategy

Analysts see the cases as part of a wider strategy by Kazakhstan to:

• Reassert sovereignty over strategic resources

• Increase state revenues amid budget pressures

• Renegotiate legacy contracts without formally tearing them up

The government has used arbitration wins — or the threat of them — to push foreign partners toward revised commercial terms.

Why It Matters Now

For Shell and other majors, the rulings introduce legal and political risk into projects once seen as stable, long-life assets. That uncertainty is why companies are now pausing new investment until disputes are resolved.

For Kazakhstan, the outcome will shape how future energy deals are structured — and signal to investors how far the state is willing to go to rewrite the rules of its post-Soviet energy boom.

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