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Karachaganak group will sell stake to state

Shareholders in Karachaganak Petroleum Operating (KPO), the last foreign-only consortium running a large project in Kazakhstan, will cede 10% of the project to the state.

The news follows a July government decision to reintroduce crude export duties of $20 a tonne, and that the duty would also apply to consortia operating under production-sharing agreements (PSAs) featuring immunity-from-tax-change clauses (PE 8/10 p30).

Analysts said the move was designed to force the shareholders of KPO – Eni, BG, Chevron and Lukoil – to hand a stake in the project to the state. In 2009, production at the field averaged 231,000 barrels a day of liquids and 25m cubic metres a day of natural gas.

KPO will transfer 5% of the project, half of the agreed stake, to the state in exchange for the government dropping plans for a crude export duty, or for a $1.3bn lawsuit it was planning against the consortium, which the government said had over-stated costs. The state will buy the remaining 5% with cash.

The deal, which should close this autumn, is likely to give the state-owned oil company, KazMunaiGaz (KMG), some control over expenditure on Karachaganak's third stage of development. The transfer follows the same model deployed two years ago during negotiations over the Kashagan offshore oil project. The Eni-led consortium agreed in 2008 to let KMG double its 8.5% stake following government accusations of environmental violations, project delays and cost overruns.

In 2008, KPO paid more than $0.7bn in export duties until the rate was set to zero in 2009. But over the past two years, the consortium has been pursued by the authorities with accusations of tax evasion and violations of environmental, employment and immigration laws. In September 2009, KPO filed for international arbitration, seeking $1.3bn from the government. This covered the disputed export duties, environment-related penalties and other taxes charged.

Kazakhstan has been working to take back control of its oil and gas resources and raise more through taxes and export duties over recent years as it considered disadvantageous the agreements it made with western oil majors in the 1990s, when it was in greater need of foreign investment and expertise. Oil minister Sauat Mynbaev said in June that Kazakhstan's 16 PSAs with foreign firms were under review, because they would not generate enough income for the country. But he added that there was no plan to cancel them.

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