After months of tense negotiations, Kazakhstan and a group of Western oil majors developing the massive Kashagan oilfield signed a revised agreement on the future of the longdelayed project on October 31. The final deal between the Kazakhstan authorities and all the members in the international consortium under the North Caspian Sea PSA NCSPSA (ENI, ExxonMobil, KazMunaiGas, Shell, Total, ConocoPhillips and INPEX) draws a line under the disagreements.

A Rome-based ENI spokesman, Filippo Cotalini, told New Europe on October 31 that “negotiations between the consortium and the Kazakh authorities lasted roughly 15 months” and that the agreement is a major breakthrough and opens up the way for the project to move forward. Cotalini said “production will start the last quarter of 2012” and would take off during Phase-2 eventually reaching a maximum daily output of 1.5 million barrels a day. The project led by Italy’s ENI has been marred by production delays and increased costs, leading the government to push for a revision in the deal’s terms.

The stand-off started in August 2007 when the government accused its shareholders of allowing costs to spiral to USD 136 billion from USD 57 billion and missing the original 2005 target to start production. The agreement reached on October 31, 2008, also boosts the profits Kazakhstan will get from the international consortium developing Kashagan. Under this agreement, KazMunaiGas acquires a greater participation going from 8.33 percent to 16.81 percent making the co-venturers interest in the NCSPSA approximately as follows: ENI - 16.81 percent, ExxonMobil - 16.81 percent, Kaz- MunaiGaz - 16.81 percent, Shell - 16.81 percent; Total - 16.81 percent, ConocoPhillips - 8.40 percent and INPEX - 7.56 percent.

ENI affiliate Agip KCO, the operator in the project, said in a press release that ENI will retain responsibility of the execution of the Experimental Programme (Phase 1) of Kashagan. For Phase 2, co-venturers managing project execution will be Shell for the offshore development, ENI for the onshore plant and ExxonMobil for the drilling. Shell will manage the production operations after the start up of Phase 1 with KMG progressively assuming greater responsibility.

To carry out their responsibilities, ENI, Shell and ExxonMobil will have appropriate authority on matters such as staffing, procurement, operating procedures and they will apply their own companies’ management systems, the press release said. KazMunaiGaz will take on an increasing role in the project and will be involved in each step of its development. ENI will pass its lead role as the project operator in January 2009. A new joint operating company for the NCSPSA is created comprising all the co-venturers in the NCSPSA Consortium with their respective participating interests, the press release said.

The joint operating company is named North Caspian Operating Company (NCOC) BV, and will take over the responsibilities which are currently with Agip as the sole operator of the NCSPSA. According to a transition plan that is being prepared by NCOC the transfer of operatorship from Agip to NCOC should take place in January 2009.