Kazakhstan Softens Rhetoric Over Kashagan Oil Delay

Wednesday, 3 Oct 2007 | 5:02 AM ET

Kazakhstan softened its rhetoric on Wednesday in a row over production delays with a group of oil companies led by Italy's Eni, saying it hoped to resolve environmental concerns at the offshore oilfield.

The government of the vast Central Asian state has threatened to strip Eni of its leading role at the Kashagan field, the biggest oil find in three decades, as it negotiates a new budget and timetable for pumping crude.

Energy Minister Sauat Mynbayev told an annual oil and gas conference that progress had been made on environmental concerns, one of its key complaints alongside the cost overruns
and delays.

He said the government and Eni would sign a memorandum in which the consortium agreed to a specific plan for dealing with sulphur stocks extracted from the oil.

"I hope we will sign this memorandum," he said.

Although inert, piles of yellow sulphur the size of several soccer fields have also been frequently cited as an environmental concern by the government at the onshore Tengiz oilfield operated by Chevron .

"The Kazakh side has clearly softened the tone... and it's not just because of the presence of foreign investors today," a person familiar with the talks said.

Despite the change in tone, Mynbayev repeated the government's concerns about ballooning costs at the oilfield in the Caspian Sea.

"How the cost managed to rise in a year-and-a-half from $57 billion to $136 billion raises certain questions," he said.

"The interest of both sides have been severely violated.

"We would like to discuss these issues in a calm atmosphere and we hope we will not have to resort to legislative measures.

We hope to resolve all problems through talks."

Talks are due to run until an Oct. 22 deadline. The government has said it would like to see its state company KazMunaiGas, already a consortium member, become co-operator of the project.

Parliament has passed a law allowing the government to break contracts with foreign oil companies if it determines there is a threat to the former Soviet state's national security.

A government official has said Kazakhstan was seeking more than $10 billion in compensation for the delays and most analysts believe it is unlikely to completely change the terms of the Kashagan deal as it needs foreign technical expertise.

The oil lies deep below the surface in a shallow part of the Caspian Sea that partially freezes in winter. It is under high pressure and contains toxic hydrogen sulphide.

The Kashagan consortium also includes Royal Dutch Shell, Exxon Mobil, Total, ConocoPhillips and Japan's Inpex.

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