Oil Report

INTERVIEW-Kazakhstan aims to end row over Karachaganak field within a month

* Kazakhstan raised objections to revenue share in 2016

* Former Soviet state expects one-off payment

* Minister sees compromise on profit share calculation

ASTANA, May 17 (Reuters) - Kazakhstan aims to settle its profit-sharing dispute with energy majors developing the Karachaganak gas condensate field within a month, the energy minister said on Thursday.

The former Soviet republic expects a large one-off payment from the companies and a higher share of future revenues from the development of one of the Central Asian nation’s biggest hydrocarbon fields, Kanat Bozumbayev told Reuters.

Kazakhstan said in 2016 it disagreed with how the consortium led by Italy’s Eni and BG, which has since been taken over by Anglo-Dutch firm Shell, calculated the parties’ shares in the income from the Karachaganak field.

Settling the dispute which according to Lukoil, another partner in the project, involved a $1.6 billion claim, could pave way for expanding the project at Karachaganak and secure higher revenue for the Kazakh government.

“The talks are in the final stage. There are optimistic expectations that they will be concluded within a month,” the minister said in an interview. “We have agreed the key principles, (but) there are technical nuances.”

Foreign firms are developing Karachaganak under a production sharing agreement that allows them to recover some costs before sharing a part of the remaining revenue with the state.

But arguments about what costs are eligible for recovery can become tricky and technical.


Bozumbayev said that Kazakhstan was seeking “compensation for the past years”, saying the figure was “more than hundreds of millions of dollars” without naming a precise number.

He said Kazakhstan had also “demanded that they change the way” profit share for the parties was calculated in future.

“We can say we have almost agreed the sum of the compensation, and reached a compromise on the calculation method. Some of our demands are being met, roughly a half of them,” the minister said.

Bozumbayev said there could also be other forms of compensation, such as a long-term loan for constructing an oil refinery and supplies of oil and gas for the domestic market. In addition, he said there could be other investment commitments.

Eni and Shell each own 29.25 percent of the Karachaganak project in northwest Kazakhstan, while Kazakhstan’s KazMunayGaz owns 10 percent, U.S. Chevron Corp has 18 percent and Russia’s Lukoil owns 13.5 percent.

Karachaganak produced 4.2 million tonnes of gas condensate, a product marketed the same way as oil, in January-April, 0.7 percent less than in the same period of 2017. (Writing by Olzhas Auyezov Editing by Edmund Blair)