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UPDATE 1-Kazakhstan, investors may settle Karachaganak oil dispute this year

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ASTANA, Sept 7 (Reuters) - A group of foreign oil companies have offered to build a gas processing plant in Kazakhstan in exchange for settling a $1.6 billion profit sharing dispute over the Karachaganak project, a Kazakh state energy firm executive told Reuters on Thursday.

Murat Zhurebekov, chief executive of PSA LLC, a unit of state energy firm KazMunayGaz, said Kazakhstan would evaluate the offer of the group led by Shell and ENI and decide before the end of this year whether to accept it.

"Kazakhstan is carefully studying the project and holding consultations both domestically and abroad," Zhurebekov said.

Separately, a source close to the talks between the Kazakh government and the consortium told Reuters that President Nursultan Nazarbayev had ordered his cabinet to settle the dispute, which has already escalated to arbitration.

Russia's Lukoil, also a consortium member, said in April 2016 Kazakhstan had filed a $1.6 billion claim against the group developing the Karachaganak gas condensate field.

The former Soviet republic's energy ministry has said the dispute was about calculations of the parties' shares in the field's output.

Eni and Shell each own 29.25 percent of the Karachaganak project in northwest Kazakhstan, which they jointly operate. KazMunayGaz owns 10 percent, Chevron Corp 18 percent and Lukoil 13.5 percent.

Karachaganak produced 78.8 million barrels of liquid hydrocarbons in the first half of 2016, up 11.3 percent from the same period a year earlier.

The field contains 1.2 billion tonnes of oil and gas condensate and more than 1.35 trillion cubic metres of gas, making it one of the world's largest oil and gas deposits.

The consortium exports gas condensate - which is very similar to oil - via oil pipelines through Russia. It pumps some of the gas it produces back into the reservoir to increase pressure, and ships the rest to Gazprom's plant in Orenburg, Russia.

If the group were to build a plant on site, supplies to Gazprom may stop.

Resolving the dispute could help Kazakhstan and the consortium accelerate a $4.5 billion expansion project aimed at prolonging its output peak. (Additional reporting by Dmitry Zhdannikov in London; Writing by Olzhas Auyezov; Editing by Dmitry Solovyov and Mark Potter)