KazMunayGas increases Kashagan share, influence

Jan. 21, 2007
Kazakhstan’s state-run KazMunayGas will increase its interest in the Kashagan offshore oil project to 16.81%, equal to the shares of the other majority shareholders, according to Energy and Mineral Resources Minister Sauat Mynbayev.

Kazakhstan’s state-run KazMunayGas will increase its interest in the Kashagan offshore oil project to 16.81%, equal to the shares of the other majority shareholders, according to Energy and Mineral Resources Minister Sauat Mynbayev.

The Eni SPA-led consortium confirmed Jan. 14 the signing of a new memorandum of understanding to settle the long-running dispute with the Kazakh government, saying its members would dilute their various stakes in the project to allow KMG to increase its stake.

The new agreement, effective Jan. 1, will result in Eni, ExxonMobil Corp., Total SA, and Royal Dutch Shell PLC each holding 16.81%, down from 18.5%.

The remaining two shareholders, ConocoPhillips Co. and Inpex Holdings Inc., will also see their stakes—9.26% and 8.33%, respectively—diminish, though officials did not state the percentage the two firms will surrender.

The consortium members also said they had agreed to a new operating and governance model and further unspecified financial components. “The agreement also includes a value transfer package from the consortium to the Kazakhstan authorities,” the company said in a statement.

“Because this was part of a package agreement, we agreed the price for the additional stake at $1.78 billion plus interest accumulation up to the payment date. The payment will be made in three tranches following the start to oil production,” Mynbayev said.

“Aside from the stake purchase, we also discussed a potential package of cash flows in Kazakhstan’s favor,” he added, explaining that the sum of the cash flows is about $5 billion or so-called net present value.

“That is the sum that will be paid to Kazakhstan over the life of the project,” he said. “The project is scheduled until 2041; therefore the sum will amount to about $20 billion.”

The Kashagan project is scheduled to start commercial production in 2010, delayed from an original date in 2005. Kazakh officials say Kashagan’s total costs have jumped to $136 billion from an initial estimate of $57 billion. These cost increases and delays in startup and production are the reasons Kazakhstan gave for renegotiating the development contract (OGJ Online, Oct. 12, 2007).

The field has an estimated 4.8 billion tonnes of oil. Eni estimates that Kashagan will produce 1.5 million b/d of oil at its peak output.

In addition to the financial changes, “The sides agreed to implement a new operating model, one that involves forming a new operating company with the involvement of all existing consortium members, including [KazMunayGas], the role of which has increased considerably. It is under the control of this operating company that Agip KCO will bring the pilot phase to fruition,” Mynbayev said.

“The manner in which the functions of the various participants are delegated thereafter is subject to further talks, without any major controversial aspects. This should be clarified before May,” he said.