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Kazakhstan: Premier Warns Eni About Failures At Caspian Oil Field

By Bruce Pannier, Radio Free Europe / Radio Liberty, 6 September, 2007

Kazakh Prime Minister Karim Masimov today warned the Eni-led consortium operating the Kashagan oil project that delays and cost overruns are taking on a "systematic character" and that the government is having doubts about the ability of the consortium to complete the project.

Category: Economy
Posted by: admin

Located in Kazakhstan's sector of the Caspian Sea, the Kashagan field is believed to be the largest oil field discovered in the world since the 1960s.

Eni is a subsidiary of Italy's Agip oil company. The consortium Eni leads originally promised to start production at Kashagan in 2005, but has revised that date several times.

The latest revision came in early August when the consortium announced it would not be able to meet a 2008 date for production and would instead start in the second half of 2010. Eni also announced that the cost of the project would be $136 billion instead of the original $57 billion.

Government Moves In

The Kazakh government late last month ordered activity at the field suspended for three months, citing environmental concerns, as well as repeating its dissatisfaction with delays and increasingly higher costs for production.

While mentioning the Kazakh government's doubts about Eni's ability to meet deadlines and keep within budget, Prime Minister Masimov also said the government is considering revising the deal with Eni to give the state oil company, KazMunaiGaz, a larger share in the Kashagan project.

"We think the economic balance has been broken to the disadvantage of the Kazakh government," Masimov said. "Relevant demands have been made and friendly talks are now under way to resolve the situation."

KazMunaiGaz currently has only an 8.3 percent share in Kashagan, one of the smallest shares among the partners in the project. Masimov said KazMunaiGaz should be a "joint operator" on the Kashagan oil field, though he wouldn't say what kind of stake KazMunaiGaz should have.

Masimov also said the Kazakh government has a "plan B" in case a deal cannot be reached with Eni, but that he is not prepared to talk about that just yet.

Recouping The Costs

The Kazakh government intends on September 7 to present Eni with a bill for production delays and cost overruns that reportedly will total some $10 billion.

Masimov said today that the Kashagan production delays and cost overruns "threaten Kazakhstan with serious socioeconomic consequences," such as the inability of the government to build new schools, hospitals, roads, and implement other large-scale economic projects.

Masimov said a candid negotiation process is under way with Eni representatives and there is still hope for a quick solution to the problems.

But he warned today that anyone who violates Kazakhstan's laws will "bear full responsibility in accordance with the law and with international standards."

Estimates are that Kashagan has a minimum of 7 billion barrels of recoverable oil.