Kazakhstan demanded a leading role for its state energy company in running the huge Kashagan oilfield on Thursday after a group of Western oil majors failed to meet time and cost targets.
Kazakhstan has piled pressure on the group headed by Italy's Eni, suspending Kashagan's operations altogether and dealing a blow to investor confidence in the oil-rich state.
On Thursday, Prime Minister Karim Masimov said state company KazMunaiGas should join the operators managing one of the world's biggest oil finds in three decades.
"According to the Kazakh president's orders and demands, KazMunaiGas should be a co-operator," he told reporters on the sidelines of a conference in Astana. "I will not say anything about percentages at this stage."
KazMunaiGas holds 8.3 percent in Kashagan. Asked what he would do if the group did not meet Kazakh demands, Masimov said: "We have Plan B. I'll tell you about that later."
Eni responded that it was ready to discuss all proposals and was setting up a meeting between its Chief Executive Officer, Paolo Scaroni, and Masimov.
"We confirm our willingness to tackle all the issues raised together with all the partners of the Kashagan consortium," an Eni statement said, adding that the timing was being determined.
Analysts have drawn parallels between the Kashagan row and resource nationalism around the world where governments, emboldened by high oil prices, seek more cash and control from foreign companies tapping their riches.
"Oil prices have shot up, the economics have changed sharply, and the government wants a piece of the pie," said Ron Smith, an Alfa Bank analyst in Moscow.
But Masimov, who also invited EU Energy Commissioner Andris Piebalgs to the talks, said Kazakhstan was taking action because Kashagan delays could harm its robust economic growth.
"Kazakhstan is immune from so called resource nationalism," Masimov said. "The delay ... and the doubling of costs threaten Kazakhstan with serious social and economic consequences. This means schools, hospitals and roads are not being built."
Other participants in the consortium are Royal Dutch Shell, Exxon Mobil Corp, Total, ConocoPhillips and Japan's Inpex Holdings Inc.
Kashagan is a sensitive project in Kazakhstan as it lies at the heart of the Central Asian nation's plans to triple its output over coming years and sustain solid economic growth.
The start of production has been delayed to the second half of 2010, slipping from an initial 2005 target. Its cost has escalated from $57 billion to $136 billion, according to the Kazakh energy ministry.
The massive jump in the project's cost, however, has puzzled even oil industry insiders.
"This is the most complicated, most difficult, most costly project the world has ever seen," said one source with deep knowledge of Kashagan but who is not involved in the talks.
"Of course there will be delays. That's the nature of the project. But the (cost) explosion is so big that I do not understand what has happened."
Kazakhstan has accused the consortium of failing to meet ecological standards. But a spokesman for Piebalgs said on Thursday that the EU energy chief had been to the oilfield before and witnessed its "strict" measures.
Analysts have in the past questioned KazMunaiGas's ability to manage a project of Kashagan's scale, where exploration is complicated by freezing winters, a high-pressure reservoir and toxic, sulphur-laden gas.
(Reuters)