SUMMARY: Kazakhstan continues peaceful takeover of oil and gas assets
ASTANA. Dec 14 (Interfax) - Kazakhstan became a co-owner in all oil and gas projects on its territory on December 14 when its government signed a much-anticipated deal with Karachaganak Petroleum Operating (KPO) regarding the transfer of a 10% stake in the oil and gas condensate project. The deal received a warm welcome from Kazakh President Nursultan Nazarbayev.
Thorny path
Karachaganak, with its 1.2 billion tonnes of oil and 1.35 trillion cubic meters of gas, is one of the world's biggest hydrocarbons fields and Kazakhstan's own biggest. It currently produces 45% of Kazakhstan's gas and 16% of its liquid hydrocarbons.
KPO, which is owned by BG Group (32.5%), ENI (32.5%), Chevron (20%) and Lukoil (15%), operates Karachaganak under a 40-year production-sharing agreement, signed in 1997. The consortium has so far invested around $14 billion in the project.
Rumors that Kazakhstan was eyeing a stake in the project started to circulate in the middle of 2009. Kazakh Prime Minister Karim Masimov confirmed them on December 29, 2009.
But the government and consortium members fell out, and Kazakhstan launched tax audits that resulted in $400 million in tax claims, and presented other claims connected with observance of environmental, labor and migration law. Criminal cases were opened against KPO management over alleged illegal oil production.
BG Group Plc sued Kazakhstan for more than $1 billion in the international arbitration courts, challenging the oil export duties that the republic had imposed.
The sides had been reluctant to comment on the situation for all that time.
At the beginning of June 2010, the then head of Kazakhstan's national oil and gas company KazMunayGas, Kairgeldy Kabyldin, said Kazakhstan had offered to buy a 10%-stake in the project from the Kazakh consortium.
The negotiations took until December 2011. The press reported that Kazakhstan was close to receiving its coveted stake just a week before the deal was signed.
Consensus
The agreement to resolve the issues with the transfer of the 10% stake was signed in Astana on December 14. It is expected to come into effect before the end of H1 2012. BG Group's stake in KPO will fall to 29.25% from 32.5%, that of Eni to 29.25% from 32.5%, Chevron's to 18% from 20%, and Lukoil's to 13.5% from 15%. KazMunayGas will become the owner of 10%.
"This agreement is the fruit of two-and-a-half years of effort by both sides. We are happy that the consortium also confirms that this agreement is in their interests. We got 5% in exchange for resolving all claims by the state agencies, non-tax and non-customs. We bought another 5% for $1 billion before tax. As a result, KazMunayGas becomes a 10%-participant in the project, Kazakh Oil and Gas Minister Sauat Mynbayev said.
"The consortium will provide a loan of $1 billion for three years at Libor+3% to KazMunayGas, which will service and pay off the loan with the financial flows generated by the 10% stake in Karachaganak.
Both sides are withdrawing all lawsuits and claims, he said.
"You know, we had some controversy over customs payments. The consortium will not pay these customs dues. But this does not mean a reduction in flows in favor of the budget and Kazakhstan's National Fund. For the future, the Karachaganak project will not be paying export duty [on oil]. These amounts will be received via the profitable oil mechanism, through Kazakhstan's share in profitable oil," Mynbayev said, adding that there were "no questions" over export duties paid in the past.
Kazakh Finance Minister Bolat Zhamishev said KPO would pay Kazakhstan $100 million of the $400 million tax claims. "Almost $100 million will be paid out of the $400 million plus in tax claims. The remainder has been settled through negotiations with the presentation of additional documents to contractors and additional appraisals by experts. The remaining part of taxes was removed once the Oil Ministry settled the issue on what expenditures are considered reimbursable," Zhamishev said.
Kazakhstan has also agreed to allocate KPO an additional quota to pump 500,000 tonnes a year along the Caspian Pipeline Consortium (CPC) pipeline, rising to 2 million tonnes per year in time.
"The first 500,000 tonnes are planned after June 30, 2012, after all the procedures have been finalized and in accordance with the signed agreement will enter into effect. The next quota of 1 million tonnes is related to the second phase expansion of the CPC, when this will be completed, and the last 500,000 tonnes with the full expansion in 2015," Oil and Gas Minister Mynbayev said.
Presidential praise
Kazakh President Nursultan Nazarbayev said he welcome the signing of the agreement with KPO.
"I welcome you to Kazakhstan. You have come at a very important time for us. Kazakhstan is celebrating 20 years of independence. As the prime minister informed me, you have reached agreement on an issue on which we have worked relentlessly for a long time - our ministry, Samruk-Kazyna, you, pour partners. I am grateful to you," the Kazakh president's press office quoted Nazarbayev as saying.
"You and I have worked together all these years, we have met at the Foreign Investors Council. I have always tried to help you. The Karachaganak project is developing well. This major oil and gas field is of huge importance to Kazakhstan," Nazarbayev said.
