Fitch Ratings says that the planned acquisition of a 10%
stake by Kazakhstan's
KazMunaiGaz National Company (NC KMG; 'BBB-'/Positive) in the Karachaganak
project will not have a rating impact on NC KMG and two co-operators of the
project: the UK's BG Energy Holdings Ltd ('A'/Stable) and Italy's ENI SpA
('A+'/Stable). At the same time, the agreement is likely to facilitate the next
phase of the project development which has been postponed mainly due to a
taxation and cost recovery related dispute with the government.
Fitch forecasts that NC KMG's credit metrics will not be significantly affected
by the agreement due to its financing arrangements. Kazakhstan
and the parties to the Karachaganak Petroleum Operating BV consortium reached
an agreement based on which NC KMG will become a project participant with a 10%
stake. NC KMG will pay about USD1bn for a 5% stake and the remaining 5% will be
transferred to NC KMG by its parent company JSC Sovereign Wealth Fund
Samruk-Kazyna. The payment will be financed as a USD1bn loan to be provided by
the consortium members to NC KMG and to be repaid by NC KMG in instalments over
a three-year period from the proceeds of hydrocarbons sales from the company's
stake in the project. Furthermore, NC KMG's ratings are notched down one notch
from the sovereign's and are thus more driven by the company's links with the
sovereign than by the company's standalone credit metrics.
"Although the Karachaganak transaction is not material in the context of
the financial profiles of BG, ENI and other consortium participants, it is
important for future project operations," says Angelina Valavina, Senior
Director in Fitch's EMEA Energy, Utilities & Regulation team. The agreement
foresees a final settlement of the Kazakh state's cost recovery and other
claims as well as state-owned company's involvement in the project. Given that,
it should provide a clearer foundation and framework for future project
development and potentially underpin the implementation of the expansion
programme.
As the oil and gas sector is crucial for the Kazakh economy (oil and gas
revenue accounted for around 41% of consolidated budget revenue in 2010), the
state has been tightening its grip on the industry through the state-owned
company's involvement in the projects, introduction of new taxation and more stringent
regulation. High oil prices and a relatively stable political and economic
situation in Kazakhstan
support a stronger negotiating power of the Kazakh government seeking to
re-negotiate the agreements for the development of its hydrocarbons reserves
signed in the 1990s when the country's economic and political prospects were
more ambiguous. For example, in 2008 NC KMG increased its stake in the Kashagan
project to 16.81% from 8.33%. At that time, Karachaganak remained the only
large oil and gas project being developed by the consortium of international
companies without state participation, which is about to change.
The state's attempt to gain a greater share of the oil wealth is not confined
to Kazakhstan.
Favourable oil industry fundamentals prompted quite a few commodity-rich
countries to intensify resource nationalism. However, the extent of state
involvement in the sector differs across countries. Fitch believes that finding
a balance between the state's intention to expand its role in the sector and
its ambitious hydrocarbons production growth plans is paramount in shaping the
future of the Kazakh oil and gas industry.
Fitch does not assess state participation in the industry as such but considers
it in the context of its impact on transparency and consistency of the overall
operating environment and investment climate. The agency believes that the
Kazakh oil and gas sector continues to be reliant on cooperation with
international oil companies due to the need for technical expertise and
financial support and thus is likely to remain more open towards international
participation compared to some other countries. This is also supported by the
fact that the increase of the state's role in the Kazakh oil and gas industry
appears to be driven primarily by the government's intention to boost its
revenue from the sector rather than to gain full control over it.
The agreement will come into effect on or before 30 June 2012. The Karachaganak
Petroleum Operating BV consortium comprises BG (32.5% currently; 29.25% new);
ENI (32.5% currently; 29.25% new); Chevron (20% currently; 18% new); LUKOIL (15%
currently; 13.5% new) and NC KMG (0% currently; 10% new).