KPO 'in talks' with Kazakhstan over Karachaganak field

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Jan. 13 -- Kazakhstan’s Prime Minister Karim Masimov said his country is negotiating to purchase a stake in the Karachaganak gas-condensate project from Karachaganak Petroleum Operating BV (KPO), a consortium of BG Group, Eni SPA, Chevron Corp., and OAO Lukoil.

“Currently, talks on this issue are ongoing between the energy ministry, [Kazakhstan’s state-owned] KazMunaiGas (KMG), and all the project participants,” said Masimov, referring to BG and Eni, each with a 32.5% interest, along with Chevron 20% and Lukoil 15%.

The government’s aim of purchasing a 10% stake, first reported last month, has been linked with efforts by KPO—including international arbitration—to secure a refund of more than $1 billion for export duties it should not have to pay under its final production-sharing agreement.

Under the FPSA, signed in 1997 by the Kazakh government and KPO partners, the consortium is to operate the Karachaganak facilities until 2038.

Some industry analysts suggest the government is using export duties as a pretext for pressuring the consortium to sell a stake in the Karachaganak project similar to its successful effort to gain a stake in the Eni-led Kashagan project.

In 2008, the Kazakh government doubled its stake in Kashagan to 16.8%, following a protracted dispute with the Agip-led consortium over costs and production delays. Eventually, the newly formed North Caspian Operating Co. BV—including KMG—replaced the Agip consortium as operator of the field (OGJ, Feb. 2, 2009, p. 33).

Money vs. control
However, according to one analyst, the government’s current move is more about money than it is about control of the project. Karachaganak “is very profitable for investors and if you join the project at a later stage of development you have smaller operational and financial risks,” Artem Konchin, an oil analyst at UniCredit SPA told Bloomberg News.

Kazakh officials are aware of the value of the KPO project. In December, Massimov and other officials joined KPO executives to launch the first leg of the Karachaganak-Uralsk gas pipeline being built by KPO in the Western Kazakhstan Oblast.

“The pipeline goes through the territory of five districts, and it potentially allows for gasification of 146 settlements within Western Kazakhstan Oblast,” said Massimov, calling the development “a great achievement.”

The second leg of the Karachaganak-Uralsk pipeline is due for completion in second half 2010. When complete, the Karachaganak-Uralsk pipeline will supply gas to the villages situated on the left bank of the Ural River along the way between Karachaganak field and Uralsk City.

According to KPO partners, Karachaganak is one of the world’s largest oil and gas-condensate fields. Covering more than 280 sq km, it is estimated to hold more than 1.2 billion tonnes of oil and condensate and more than 1.35 trillion cu m of gas.

Contact Eric Watkins at hippalus@yahoo.com.

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