Eni chief expects end to Kashagan stalemate

Eni SPA CEO Paolo Scaroni said he remains optimistic about a resolution to the stalemate with the Kazakh government over the company's project to develop offshore Kashagan oil field.

Eric Watkins
Senior Correspondent

LOS ANGELES, Oct. 1 -- Eni SPA Chief Executive Officer Paolo Scaroni said he remains optimistic about a resolution to the stalemate with the Kazakh government over the company's project to develop offshore Kashagan oil field.

Scaroni, citing a "common interest" among all parties that the project should continue, said oil production should begin as soon as possible. But he could not predict the outcome of talks scheduled this month.

Scaroni is expected to visit Kazakhstan Oct. 7-9, along with Italian Prime Minister Romano Prodi, in the hope of reaching an agreement with Kazakh officials to resolve the dispute over project costs and delays (OGJ, Sept. 24, 2007, p. 25). Kazakhstan has set an Oct. 22 deadline for settlement.

Scaroni said work at Kashagan is continuing in spite of a halt order issued by the Kazakh government. He said Eni is firm on its forecast of a 2010 start to oil production from the field.

Kazakhstan's Deputy Minister of Energy and Minerals Resources Duysenbay Turganov confirmed that work continues at the field despite the suspension.

"Suspension does not mean suspending all work and doing nothing there," he said. "The issue will be considered from a different angle—the change of the operator."

The dispute turns on revised development plans submitted by Eni and its partners this summer, postponing by 2 years the start of production at Kashagan.

The consortium also said the cost of the first phase of the project had nearly doubled to $19 billion, while the bill for the entire 40-year development has jumped to $136 billion from $47 billion.

Earlier this month, Kazakh Energy and Mineral Resources Minister Sauat Mynbayev, reiterating earlier government claims, told Scaroni that economic damage caused by the delay in Kashagan production was unacceptable.

Such cost overruns will cause Kazakhstan substantial financial losses since the existing Kashagan contract allows Eni and its partners to delay any royalty payments to the government until their costs are recovered.

As a result of the dispute, the Kazakh government has ordered a halt to the project. It also has demanded compensation for delays to production and cost overruns at the field, which forms the core development in its plan to triple oil output within a decade.

The Kazakh parliament has passed legislation that could allow the government to boost its leverage in talks with Eni over Kashagan.

Kazakh Energy and Mineral Resources Minister Sauat Mynbayev said, however, that the government's goal was not necessarily to boost its stake in the project but only to be in a position to approve or disapprove of Kashagan's development plan and budget.

Contact Eric Watkins at hippalus@yahoo.com.

More in General Interest