Kazakhstan Defends Right to take Investors to Task

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Thursday, 07 October 2010 22:12

10.jpgNEFTECOMPASS. Kazakhstanremains defiantly unapologetic over its hard-line stance on foreign investors in a year that has seen it resume its trusted policy of aggressively asserting control over oil and gas projects. After Prime Minister Karim Massimov had reminded the KAZENERGY Eurasian Forum held in Kazakh capital

Astana this week of the need to establish a solid base for foreign investment for Kazakhstan to be known as a reliable supplier, oil and gas minister Sauat Mynbayev admitted that the abrupt reintroduction and planned doubling of the export duty on crude oil exports will “increase uncertainties” but insisted Kazakhstan would try to solve any conflicts in a manageable way. “We didn’t touch PSA [production sharing agreement] contracts,” Mynbayev told the forum, adding that when it comes to the level of export duty charged, “you have to be reasonable.” The current rate of $20 per metric ton ($2.73 per barrel) is not a great burden on exporters but the speed at which it was reintroduced has set alarm bells ringing. The foreign investors in Kazakhstan’s three worldclass oil and gas projects — Karachaganak, Kashagan and Tengiz — have all had their share of run-ins with the government.

The Kazakhs are still locked in negotiations with Karachaganak Petroleum Operating Co. (KPO) over the export duty, which the BG and Eni-led consortium disputes being made to pay, as the Kazakhs look to seal their entry into the project (NC Sep.2,p1). Reluctant Kazakh officials appeared tired of talking about the long-running Karachaganak saga this week, as Mynbayev insisted they were not debating how much of a stake to take but merely “how to improve the work of the project.” “I’m convinced that we have now reached a mutual understanding,” he added. Mynbayev said the Kazakhs had come to an agreement with Tengizchevroil (TCO), the Chevronled operator of the giant onshore Tengiz field that counts Kazakh state Kazmunaigas (KMG) among its member companies, whereby the consortium does not lose any money. TCO has a history of resolving flare-ups with the Kazakh government fairly favorably. “We did have issues with Chevron. There was an issue with sulfur and it was addressed,” Mynbayev said, adding that Kazakhstan needed to utilize the skills and business and technological know-how of Chevron, which is also a partner in Karachaganak.Mark Albers, a senior vice president at Exxon Mobil, which is in the consortia developing Tengiz and Kashagan, also testified this week that the US major had been able to resolve any scrapes it got into. KMG Chairman Timur Kulibayev noted that “not all the nuances in negotiations can be publicized,” adding that a degree of “commercial secrecy” needed to be preserved. The consortium developing Kashagan, which includes KMG as one of the big five partners with an 18.5% interest, is sticking to its end- 2012 schedule for first oil to come on stream despite growing indications that the start-up will slip into 2013. At a press conference in Astana, Kulibayev said all installations would be ready by end-2012 but that commercial production was likely to start in early 2013. Sources close to the project say freezing temperatures during the winter will make it very difficult for the consortium to launch production before spring, 2013.

A slight slippage in Kashagan’s early oil production would not be disastrous as the consortium, under an agreement that was hammered out with the Kazakh government in  2008, was set an absolute deadline of Oct. 1, 2013. But if that deadline lapses, the partners would be liable to pay steep penalties and would likely lose all the government’s good will. There have already been three delays in start-up, which was initially due in 2005, and was then moved to 2008 and subsequently to 2011. Under Kashagan Phase 1, which will continue to be operated by Italy’s Eni, production will ramp up to around 370,000 b/d, possibly rising to 450,000 b/d. The North Caspian Operating Co. (NCOC), which was established in early 2009 and is effectively a joint operatorship shared by KMG, Royal Dutch Shell, Exxon Mobil, Total and Eni, will implement Phase 2, which will see production hit the 1 million b/d mark. NCOC would not confirm a statement made recently by KMG President Kairgeldy Kabyldin that Phase 2 start-up, which was originally earmarked for 2015-2016, had been pushed back to 2018-2019.


Tom Daly and Paul Sampson