Big Oil Beaten In Kazakhstan

Two interesting articles (among many) on the conclusion of months of protracted negotiations that have landed Kazakhstan with double its previous stake in the lucrative Kashagan oil fields, at the expense of the world’s leading oil companies.  In a piece entitled “Big Oil Beaten in Kazakhstan”, Forbes notes:

“…KazMunaiGaz, Kazakhstan’s state-owned energy company, is paying a consortium of oil majors led by Italy’s Eni, $1.8 billion. That will more than double its holding to 16.8%, from 8.3%, energy and mineral resource minister Sauat Mynbayev told a press conference on Monday….

…The deal will give KazMunaiGaz an equal stake to Eni, Exxon Mobile, France’s Total and Royal Dutch Shell which each currently hold 18.5% stakes in the project, but will see their holdings fall proportionately.  ConocoPhilips and Japan’s Inpex, which currently have 9.3%, and 8.3% stakes in the project, will also see their share fall.

Eni will lose its status as operator of the fields, which are estimated to have 13 million recoverable barrels of oil. That role will now be shared between all consortium members once production begins in 2011, said Mynbayev.

The consortium has also agreed to pay KazMunaiGaz $5 billion as compensation for delays to the project and cost overruns……

Andrew Neff, senior energy analyst at Global Insight, said the government had been eager to appease Exxon Mobil. “I would even say that the government gave ground a little bit to get the deal done,” he said. Exxon has been more reluctant than the other consortium members to transfer an equity stake to KazMunaiGaz without higher payment….”

Interesting, however, that Exxon’s contrarian gamble – i.e. to be much more aggressive in its stance than other oil majors – seems to have paid off for all.

As The Wall Street Journal reported that while Kazakhstan – like many other petro-states – began to agitate for a new contract with more favorable terms as the price of oil soared, the change in operator status may not be too significant:

“…Eni SpA of Italy will cede its role as sole operator of the huge Kashagan oil field in the Caspian Sea as part of a deal to end a long-running dispute with Kazakhstan over one of the world’s biggest oil-development projects.

From 2011, when oil finally starts to flow from Kashagan, Eni will jointly operate the field with Royal Dutch Shell PLC, Exxon Mobil Corp. and Total SA of France, the other major shareholders in the Kashagan consortium. The renewed operational arrangement is part of a deal signed late Sunday in the Kazakh capital Astana, according to Kazakh officials.

…Some analysts, however, played down the change in management, saying it was common for partners to swap the operator role on a big project as it moves from the development phase into production.

“Kashagan is an extremely complex project, and Exxon `Mobil and the other consortium members have reached an agreement on a strengthened operating model,” said Exxon Mobil spokesman Gantt Walton.”

This entry was posted on Tuesday, January 15th, 2008 at 11:26 am and is filed under ENI, Kazakhstan, KazMunaiGas.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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