Kazakhstan, Karachaganak shareholders may settle disagreements in early 2018

Oil&Gas Materials 25 December 2017 20:57 (UTC +04:00)

Baku, Azerbaijan, Dec. 25

By Ali Mustafayev – Trend:

The government of Kazakhstan and the shareholders of the Karachaganak field plan to complete the negotiation process to resolve the dispute over calculation of oil revenues by the end of the first quarter of 2018, said Deputy Energy Minister Magzum Mirzagaliyev.

"Currently, we are in the process of negotiations, and apparently we will not be able to resolve this issue until the end of the year. The question is very complicated," Mirzagaliyev said, Kazakh media outlets reported.

Last April, Minister of Energy of Kazakhstan Kanat Bozumbayev said there are disagreements between the government of the country and the contractors of the Karachaganak project regarding the calculation of shares in production.

The KPO (Karachaganak Petroleum Operating) consortium offered to pay $300 million to Kazakhstan to settle disputes with the government over Karachaganak, but Kazakhstan rejected the offer.

The disagreements over Karachaganak are based on calculation of the "objectivity index", which, according to the PSA (Production Sharing Agreement) signed in 1997, determines shares of profit for the consortium and for the government of Kazakhstan.

"This is a question of methodology: what should be considered 'compensation oil' and what should be considered 'profitable oil'. We have a different vision of this issue," Bozumbayev noted earlier.

He added that the government of Kazakhstan wants to find a new method for calculating the "index of objectivity", which would give Kazakhstan a large share of future incomes as well as reimburse the profits lost in the past.

Kazakhstan requires about $1.6 billion from companies involved in the PSA for the Karachaganak field.

The Karachaganak field is one of the largest in the world. Oil reserves of the field amount to 1.2 billion tons. Its gas reserves total 1.35 trillion cubic meters.

Development of Karachaganak, according to the PSA, is being implemented by the international KPO consortium consisting of Shell (29.25 percent), Eni (29.25 percent), Chevron (18 percent), LUKOIL (13.5 percent) and KazMunayGas (10 percent).