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Exclusive: Kazakhstan near $1 billion deal to join gas group
ALMATY/DOHA (Reuters) - Kazakhstan is poised next week to acquire 10 percent of Karachaganak, ending a long dispute with the foreign owners of a field that contributes half of the country's gas and ensuring the state owns part of every big energy project on its soil.
Two sources close to the negotiations told Reuters on Friday that Kazakhstan would pay $1 billion in cash and drop legal claims against the operators of the gas and oil field in order to earn its stake in a consortium led by BG Group (BG.L) and Eni (ENI.MI).
"Everything major that has been a bone of contention will go away," one of the sources said.
A more assertive Kazakhstan, home to 3 percent of the world's recoverable oil reserves and the largest economy in Central Asia, has sought in recent years to revise deals struck with foreign energy companies in the lean post-Soviet years.
After securing and then doubling its stake in the Kashagan oilfield, the world's biggest oil discovery since the 1960s, the state has set its sights on joining the Karachaganak consortium, which also includes Chevron Corp (CVX.N) and LUKOIL (LKOH.MM).
The field currently contributes 49 percent of Kazakhstan's gas production and 18 percent of its crude oil. It has trebled output since 1999, overcoming technical challenges such as high reservoir pressures and very sour gas.
One of three sources who spoke to Reuters said he expected senior officials from the consortium partners to be invited to the Kazakh capital Astana no later than December 16, the 20th anniversary of Kazakhstan's independence from the Soviet Union.
A second source said the signing was scheduled to take place on December 14. All of the sources spoke on condition of anonymity because of the sensitivity of the matter.
Britain's BG and Italian energy company Eni each own 32.5 percent of the Karachaganak Petroleum Operating Group. Chevron has a 20 percent stake and Russia's LUKOIL 15 percent.
Two sources said the consortium members would sell stakes on a pro-rata basis. In theory, this would see BG and Eni cut their stakes to 29.25 percent, Chevron to 18 percent and LUKOIL to 13.5 percent, though the sources did not state this explicitly.
BG declined to comment on the details or possible timetable of an agreement. The company said it believed it was on "the right path to reaching a beneficial resolution for all parties," but that it had not concluded its discussions.
"We have maintained that resolution of these issues by the end of this year would be a good result but it is far more important to get the detail right rather than simply hit an arbitrary date," the company said.
Eni, LUKOIL and Chevron declined to comment.
The deal, two sources said, would involve Kazakhstan paying $1 billion for a 5 percent stake in the consortium. In return for the other 5 percent, it would drop at least some of its legal claims against the operators, they said.
"The agreement to resolve this dispute proposes the removal of mutual arbitration claims," one of the sources said.
The government of Kazakhstan has brought a succession of claims against the operators, including back-tax claims running to more than $1 billion and accusations of overstating costs and violating ecological laws. The consortium has denied wrongdoing.
Oil and Gas Minister Sauat Mynbayev has said Kazakhstan would not drop its back-tax claims in return for a stake in the field, and none of the three sources was able to specify which cases would be dropped or whether any outstanding claims would remain.
Kazakhstan has stated it wants to exercise control over costs for the expensive but potentially lucrative Phase Three development of Karachaganak, which is located in northwestern Kazakhstan close to the border with Russia.
The field has enormous potential. Chris Finlayson, BG's executive vice-president and managing director for Europe and Central Asia, told a conference in October that only 10 percent of the hydrocarbons initially in place had been extracted.
"The key production challenge will be to increase gas-handling capacity as the gas-oil ratio rises in the field," Finlayson said at the Kazenergy conference in Astana on October 4.
(Additional reporting by Katya Golubkova in Moscow, Stephen Jewkes in Milan and Braden Reddall in San Francisco; Writing by Robin Paxton; Editing by Anthony Barker)
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