Kazakhstan and the partners in the giant Karachaganak oil and gas venture in the central Asian country said Wednesday they have agreed a resolution to their long-running dispute, allowing state-owned KazMunaiGaz to take a 10% stake in the project for a net cash consideration of $1 billion and the state withdrawing environmental charges and claims of back-taxes.

BG Group (BG.LN) and Eni SpA (E), along with partners Chevron Corp. (CVX) and Russia 's Lukoil Holdings (LKOH.RS), had for months been locked in negotiations with the Kazakh government for a stake in the project, the only major oil and gas venture in the country that the state isn't part of.

BG Group Chief Executive Sir Frank Chapman said: "BG Group looks forward to working with KMG as a partner in the Karachaganak project, one of the world's largest gas and condensate fields. This agreement represents an excellent outcome for the project partners as well as for the government and people of Kazakhstan ."

According to the terms of the agreement, KazMunaiGas will borrow $1 billion from the consortium to pay for its stake. In return, the Kazakh government will drop a set of claims against the consortium, which some observers had characterized as a tactic to force concessions on gaining equity in Karachaganak. The state had threatened to levy fines against the consortium for back taxes and alleged violations of environmental regulations.

The accord means that the partners can now proceed with plans to expand the project, boosting volumes--and income.

Analysts welcomed the news, saying that any disappointment over the dilution of the partners' stake is more than compensated for by the fact the project can finally be progressed.

"The development [of the project] is still to be evaluated but the deal clearly removes a major stumbling block," said UBS.

Kazakhstan will pay $1.5 billion in cash to the consortium partners, before tax, in exchange for a 5% share, said BG.

KazMunaiGas will gain a further 5% interest when the government pays a second pre-tax consideration of $1.5 billion, split into a $500 million cash portion and a $1 billion non-cash consideration.

"The non-cash consideration includes final and irrevocable settlement of cost recovery and other related claims," BG said.

The consortium will in turn have to pay $1 billion tax on the total amount, giving a final deal that represents $1 billion net in cash and a further $1 billion in non-cash considerations.
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