Kazakhstan Waiting for Eni Proposal in Oilfield Row

Friday, 7 Sep 2007 | 8:15 AM ET

Kazakhstan is still waiting for an Eni-led group of international oil companies to make an offer of compensation to the state for delays and cost overruns at the offshore Kashagan oilfield, a senior official said on Friday.

The row has halted work at the Caspian Sea site, the biggest oil discovery in the last three decades and one that represents the Central Asian state's entry ticket to the club of top 10 global oil producers.

"We are waiting for them to make a proposal," Deputy Finance Minister Daulet Yergozhin told Reuters. "No proposal was made on Sept. 5," he said in reference to an earlier deadline announced by the government.

His comments came a day after Prime Minister Karim Masimov demanded a leading role for its state energy company KazMunaiGas in running Kashagan. The government is also seeking more than $10 billion in compensation for the delays.

The dispute has dealt a blow to investor confidence in Kazakhstan but Karimov denied the government had fallen victim to "resource nationalism," a trend among producer nations to seek more cash and control from foreign firms tapping their oil.

Eni said on Thursday it was prepared to discuss all proposals and was setting up a meeting between its Chief Executive Officer, Paolo Scaroni, and Masimov.

Energy Minister Sauat Mynbayev said the negotiations could take a long time, complicated by the need for all seven consortium members to agree a common position.

'Open to Dialogue'

Kashagan was originally scheduled to start production in 2005, but the date has repeatedly slipped -- the oil is now forecast to flow in 2010 -- and costs have soared.

Yergozhin also welcomed comments from consortium member Total this week about the need to speed up negotiations. Work at Kashagan has been suspended as part of the row, which includes Kazakh accusations of environmental damage.

"It's good that they are proposing to speed up the process," Yergozhin said. "We are open to dialogue."

The other participants in the Kashagan consortium are Royal Dutch Shell, Exxon Mobil, ConocoPhillips and Japan's Inpex Holdings.

Mynbayev said there was no obvious limit on how long negotiations might last.

"This could actually last a long time. It depends on what positions the two sides take," he told Reuters following a government meeting in the capital Astana.

KazMunaiGas, which has an 8.3% stake in the oilfield, has not commented on Karimov's proposal that it take up co-operatorship of Kashagan and Mynbayev said no final decision had yet been taken.

"You speak as if the decision on KMG had been taken to take up operatorship," he said. "This is a very long process of negotiation."

He added that any of the consortium members could in theory be operator. Some analysts have expressed doubt that KazMunaigas has the necessary expertise to run such a complex project.

Freezing winters, poisonous hydrogen-sulphide gas, and very high pressure make exploiting Kashagan a technical challenge and solving such problems has contributed to the delays.

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