Embassy of Kazakhstan

The operations at Kashagan (on oil field in the Kazakh sector of the Caspian Sea) may be suspended because Eni, the operator of the project, violates the environmental legislation.

“I would like to say that the operations at Kashagan may be stopped. We are conducting a regular audit and have every reason to believe that the operator does not follow the requirements contained in the environmental laws of Kazakhstan,” Environmental Minister Nurlan Iskakov told a meeting of the government in Astana on Tuesday.

“We have notified the Prosecutor General’s Office accordingly,” he added.

“Furthermore, taking into account the fact that Agip has failed to fulfil the obligations earlier assumed, we must follow the law and withdraw the permit because the company’s further operations may cause an irreparable damage to the environment,” Iskakov said.

He also mentioned that the required documents will be sent to the Ministry of Energy and Mineral Resources in order to suspend the operations.

Prime Minister Karim Massimov instructed Minister of Energy Baktykozha Izmukhambetov at the meting “to look into the situation today and take measures in accordance with the legislation of the Republic of Kazakhstan.”

Prime Minister Massimov earlier said that the Kazakh government might change the operator of the Kashagan project.

“We are very disappointed with the progress of the project. If the operator does not succeed in resolving these problems we may be forced to change him," Massimov said. According to Izmukhambetov, Eni earlier officially notified the Kazakh Energy Ministry of changing the date of the commercial production start at Kashagan from 2008 to the second half of 2010.

According to Eni's new proposal, the costs associated with the project will grow considerably - from 57 up to 136 billion dollars, said Izmukhambetov.

One issue for discussions may be an increase in the Kazakh profit oil share from 10% up to 40%, according to the minister.

This is not the first delay. Under SPA the international consortium Agip KCO, working on the Kashagan field, should have started the commercial production at this field back in 2005. As this date happened to be unrealistic the parties started negotiating on a delay in the commencement of the field development and agreed that Agip KCO would start commercial operations at Kashagan in 2008.

In February 2004 Agip KCO reached an agreement with Kazakhstan government whereby the commencement of commercial oil production at Kashagan would be postponed till 2007-2008. In addition, in accordance with the documents signed by the parties, Agip KCO was to pay Kazakhstan a compensation for the delayed commencement of commercial oil production in an amount of $150 million.

AGIP KCO was created to implement the North-Caspian project after a respective Production Sharing Agreement (PSA) for the period of 40 years was signed in 1997. Under PSA the licensed area will also include the three oil-bearing structures Kalamkas, Aktoty, Kairan in addition to Kashagan. These 4 structures consist of 11 marine blocks, which occupy an area of about 5,600 square kilometres. According to Agip KCO the recoverable oil reserves at Kashagan are estimated at a minimum of 7-9 billion barrels and the total oil in-place - at 38 billion barrels.

Currently Agip KCO is owned by Eni (the single operator of the North-Caspian Project), Total, ExxonMobil, Royal Dutch/Shell which have 18.52 per cent each, ConocoPhillips - 9.26 per cent, Inpex and KazMunayGas - 8.33 per cent each.