Parties ready for 'open dialogue' on Kashagan development delay

Sept. 11, 2007
Kazakh Energy and Mineral Resources Minister Sauat Mynbayev told Eni Chief Executive Paolo Scaroni that economic damage caused by the delay in production at giant Kashagan oil field was unacceptable.

Eric Watkins
Senior Correspondent

LOS ANGELES, Sept. 11 -- Kazakh Energy and Mineral Resources Minister Sauat Mynbayev, reiterating earlier government claims, told Eni SPA Chief Executive Paolo Scaroni Sept. 11 that economic damage caused by the delay in production at giant Kashagan oil field was unacceptable.

"Delay of production at Kashagan and significant postponement to recoup costs will lead to [a] significant cut of planned growth of the national economy for the next 10 years and threatens [the] implementation of long-term program of the country's economic development," Mynbayev told Scaroni.

At the meeting with Scaroni, Mynbayev also expressed Kazakhstan's readiness for an open dialogue aimed at resolving the issue related to the implementation of the Kashagan project, but asked that "our well-founded demands related to the mineral developers' fulfillment of their commitments not to be politicized."

For its part Eni confirmed that Scaroni held face-to-face talks with Kazakh Prime Minister Karim Masimov. It said the talks were held in a "climate of cooperation" and that the "basis was set" for future negotiations over Kashagan between the consortium and Kazakh authorities.

The Eni-lead consortium has come under pressure from the Kazakh government due to cost over-runs and a delay in starting production, originally scheduled for 2005 but now due in 2010.

The Kazakh government, which claims that the overall cost of the project has grown to $135 billion from $57 billion, last month announced a 3-month suspension of the project saying it had environmental concerns (OGJ Online, Aug. 28, 2007).

Such pressure has prompted comparisons with the tactics used last year by Russia's OAO Gazprom to seize the Sakhalin-2 oil project from a consortium led by Royal Dutch Shell PLC. According to Konstantin Batunin, an analyst with Moscow-based Alfa Bank, Astana wants to increase its interests in Kashagan to increase its shares and oil profits.

That view was supported last week when Masimov, speaking at a gas conference, announced that "in accordance with orders and demands" by President Nursultan Nazarbayev, state energy company KazMunaiGaz "should become a joint operator of this project."

Eni, Total SA, ExxonMobil Corp., and Shell each hold 18.52% stakes in the consortium; ConocoPhillips holds 9.26%, while Inpex and KazMunaiGaz each own 8.33%.

Contact Eric Watkins at [email protected].