A group of western oil companies signed an agreement with the government of Kazakhstan on Friday that resolves a long-running dispute over one of the world's largest oilfields in the Caspian Sea.
A Kazakh government spokesman said documents had been signed in the Kazakh capital of Astana between the authorities and seven oil firms that set out the details of the multiphase development of the field, Kashagan. Commercial output will start in 2013, under the revised contract.
"This is a logical solution," said Paolo Scaroni, chief executive of ENI SpA (E), which is leading the consortium of companies developing Kashagan, in an interview from Astana. "I'm feeling at ease with it."
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Kashagan was the biggest oil find in 30 years when it was discovered in the Kazakh part of the Caspian Sea in 2000. But it has proved a tough challenge for the ENI-led consortium. The production start-up has been delayed numerous times and the budget plagued by cost overruns.
In August 2007, the Kazakh government accused the consortium of letting costs soar to $136 billion from $57 billion, pushing back the time when Kazakhstan will start to see big revenue from the project and delaying the production start-up from the original date of 2005 to the end of 2010.
There then followed months of tense negotiations between the authorities and the consortium partners - Royal Dutch Shell PLC (RDSA), Exxon Mobil Corp. (XOM), Total SA (TOT) of France, ConocoPhillips (COP), the Kazakh state-owned energy giant KazMunaiGas and Japan's Inpex Holdings Inc. (1605.TO).
A key part of the solution to the dispute is an agreement to double KazMunaiGas' stake in the project to 16.81%, with all the other partners reducing their stakes proportionately.
As part of the agreement, ENI will lose its status as sole operator of the field. Instead, a joint operating company will be created, owned on a pro-rata basis by all the consortium members. The managing director will rotate, with the first supplied by Total, and his deputy by KazMunaiGas.
Scaroni said ENI was committed to starting production at the field by the end of 2012, even though 2013 is the official start-up. He said the new operating company will assign work to the partners: for example, ENI will complete the initial, experimental phase of the project and share responsibility for the second phase with Shell. In that phase, ENI will be in charge of all onshore facilities, Shell of the offshore part, and Exxon will conduct drilling operations.
Initial production will be 150,000 barrels a day, rising to 300,000 bpd within 12-15 months. The field ultimately would produce 1.5 million barrels a day, making Kashagan the most prolific field after Ghawar in Saudi Arabia, Scaroni said.