The long and difficult negotiations over Kazakhstan’s oil-rich Kashagan field finished a day before the peaceful and amicable period would cross over to a litigation phase.
Kazakhstan Minister of Energy and Mineral Resources Sauat Mynbaev announced the three main results of the negations at a press-conference in Astana: The national company has become a major shareholder having increased its share to 16.81 percent, the Kashagan development project will have a new operator, and the first oil from the field has been postponed from 2010 to the end of 2011.
“Strictly speaking, the project operator will be changed. It will be a new operating company jointly owned by all the participants of the international consortium Agip KCO,” Mynbaev said.
Italy’s ENI, that has led the project until now, will finish its duties during the pilot stage, he said. In the future, control of the field can be transferred to a participant of the consortium that will have the necessary expertise and capabilities for a given stage. Decisions on who will be running the field will be made jointly at each stage, Mynbaev clarified.
It means that this time Kaz- MunaiGas did not receive the desired status of co-operator in Agip KCO. But in the future it will more than likely resume its struggle for control over the project.
The minister informed that after the hard and lengthy negotiations all major participants of the project, including, first of all, the national company KazMunaiGas, will have equal shares of 16.81 percent. The Kazakh company will have to pay six foreign shareholders USD 1.78 billion in three installments after the beginning of production. Also, the total compensation to Kazakhstan will be USD five billion which the investors may pay at once or over the life of the projects, that is over 40 years.
In the latter scenario, considering inflation, the compensation may grow to as much as USD 20 billion.
Extracting oil from the fields has now been postponed from 2010 to late 2011. “We believe that the budget for the first stage of the project will be determined by March of this year. It will define the final date for the first oil. We expect it to be the end of 2011, as these six months we have justifiably spent on discussions,” Mynbaev said.
The European Union welcomed the agreement between the major oil companies and the government of Kazakhstan over the Kashagan, the world’s biggest oilfield to have been discovered over the past 30 years, saying it should help ease world energy markets at a time of increased demand.
Evaluating the process of negotiations on the whole, oil experts say that although it was long and difficult, it was mainly quiet and civilised. However, in Kazakhstan, there was an element of nervousness three days before the positive outcome of the events. On January 11, a number of major information agencies reported, with reference to an anonymous source, that Kazakhstan was ready to cancel the Production Sharing Agreement (PSA) with the consortium unless all its interests were recognised.
Going on reports at the very beginning of the negotiations, Kazakhstan Prime Minister Karim Masimov stated that “if the negotiations do not result in a decision meeting the economic interests of Kazakhstan, the government “has Plan B.”
It is quite possible, the oil experts believe that Plan B includes the cancellation of the Kashagan PSA.