Eric Watkins
OGJ Oil Diplomacy Editor
LOS ANGELES, Jan. 19 -- Kazakhstan’s state-owned KazMunaiGas (KMG) has proposed to its partners in the North Caspian Operating Co., which is developing the Kashagan oil field, a reduction in spending to $7.4 billion from the planned $10.4 billion.
In addition to KMG, the consortium is comprised of Total SA, ExxonMobil Corp., ConocoPhillips, Royal Dutch Shell PLC, Eni SPA, and Inpex.
“We have suggested that this year the expenditures be optimized and, as a result, the budget be cut down by nearly $3 billion. The proposal is now being reviewed by the authorized agency,” KazMunayGas Pres. Kairgeldy Kabyldin told the country’s energy ministry, giving no reason for the cut.
However, analyst IHS Global Insight observed that the Kazakh government and the Kashagan consortium have a “long history” of strained relations over cost overruns and delays at the Central Asian state's flagship offshore project.
After a protracted negotiations, KazMunaiGas doubled its interest in Kashagan, a takeover that analysts said was part of a global trend by governments to reclaim control over strategic energy assets.
IHS Global Insight noted that Kazmunaigaz raised its stake to 16.81% as a result of that previous round of “sparring” between the consortium and the government, which pushed back the timetable for production and agreed on a plan for controlling costs.
“Nevertheless, with the wild swing in oil prices over the past 18 months, expenditures in the first stage of the project have continued to be a source of friction,” the analyst said, adding that Kabyldin's comments “hint that the government is keen to keep a lid on rising costs again, which are now expected to reach $38 billion by 2014.”
Kabyldin’s comments coincided with reports that Kazakhstan hopes to resolve a new emerged dispute with a group of foreign companies led by BG Group and Eni over the huge Karachaganak gas field this year.
"One of the key tasks for 2010 is to bring clarity to the Karachaganak project in terms of resolving existing disputes,” Energy Minister Sauat Mynbayev said, adding, “Intensive negotiations are taking place.”
Earlier this month, Kazakhstan’s Prime Minister Karim Masimov said his country was negotiating to purchase a stake in the Karachaganak gas-condensate project from Karachaganak Petroleum Operating BV (KPO), a consortium of BG, Eni, Chevron Corp., and OAO Lukoil.
“Currently, talks on this issue are ongoing between the energy ministry, KazMunaiGas, 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% (OGJ Online, Jan. 13, 2010).
Contact Eric Watkins at [email protected].
