Astana turns down another settlement offer from KPO investors
Thursday, Sep 14, 2017
Kazakhstan is understood to have rejected another settlement offer from the IOCs running the northwestern Karachaganak field, in a US$1.6 billion dispute over profit sharing.

It emerged last week that members of the Karachaganak Petroleum Operating (KPO) consortium had offered to build an onsite gas processing plant in exchange for authorities dropping the claim, lodged last year.

Murat Zhurebekov, who heads an agency tasked with negotiating with foreign oil and gas companies on Astana’s behalf, told Reuters on September 7 that the government would decide whether to accept the proposal before year-end. In an interview with the newspaper the next day, however, Kazakh Energy Minister Kanat Bozumbayev said the government viewed the offer as lacking.

“We have calculated the value of the offer to Kazakhstan and it does not meet our demands and we have already told that to consortium members,” he said. “We have asked the consortium to offer something in addition.”

Bozumbayev also noted that building a gas processing plant at the field would first require talks with Russia, which currently processes all of the gas from Karachaganak that is not re-injected to maintain reservoir pressure. He reiterated that Astana would stand by its gas supply commitments to Russia’s Gazprom, which took 16.1 bcm of the fuel from Kazakhstan last year.

Russia’s LUKOIL, a member of the KPO group, revealed in April last year that Kazakh authorities had filed a US$1.6 billion claim against the consortium. The dispute relates to how profits from production at the field are divided up between Karachaganak shareholders and the government. However, some observers view it as an attempt by Astana to wrestle greater control over the project or gain other forms of concessions.

Italy’s Eni and Royal Dutch Shell each hold a 29.5% equity position in the KPO group, while Kazakh state oil company KazMunaiGas (KMG) owns a 10% stake. Chevron controls a share of 18% and LUKOIL has 13.5%.
In June last year, Astana rejected an offer by the consortium to pay US$300 million in exchange for the government dropping its claim. Three months later, Shell signed a memorandum of co-operation with authorities on developing gas processing and petrochemical facilities.

Karachaganak was discovered in the Soviet era but did not begin full-scale commercial production until 2004, under the management of Eni.

The field yielded 382,000 boepd of hydrocarbons last year, down from 388,000 boepd in 2015. It holds around 1.2 billion tonnes (8.8 billion barrels) of liquids and over 1.35 tcm of gas. If Astana and KPO are able to overcome their differences, this would clear the way for a final investment decision (FID) on a US$4.5 billion expansion project at the field aimed at maintaining its plateau production rate.
 
The dispute at Karachaganak is likely tied to negotiations over the future of the offshore Kashagan oilfield, whose operating consortium is also led by Eni and Shell. Other shareholders include France’s Total, ExxonMobil, China’s CNPC and Japan’s Inpex.

Kashagan was launched late last year after over a decade and a half of repeated delays and cost overruns and is now flowing around 200,000 bpd of light crude. In his interview with Reuters, Bozumbayev noted that output could reach 300,000-370,000 bpd by the end of the year and as much as 450,000 bpd if an expansion went ahead.

According to the newspaper, the Kashagan consortium is already drawing up a plan for second-stage development of the field which they aim to present next year. Bozumbayev said the cost of the expansion had been slashed from an initial US$4.7 billion to just US$2.0 billion.

“If Kazakhstan approves it, the project can be implemented very quickly,” he said.
 
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