Oil Companies to Pay Kazakhstan $1.1 Billion Compensation for Karachaganak Project

Source Press Release
Company KazMunayGas 
Tags Issues & Setbacks, Financial & Operating Data
Date October 01, 2018

Oil companies involved in the Karachaganak project will pay Kazakhstan $ 1.1 billion compensation after a long-lasting dispute.

The Government of Kazakhstan represented by the Energy Ministry, the Finance Ministry and the authorized body - PSA LLP, as well as the shareholders of the Karachaganak project, that is Eni, Shell, Chevron, Lukoil and KazMunayGaz companies agreed to settle the dispute on the objectivity index.

There were disagreements on the method of calculating the shares of the parties in the section of profitable products between the republic and the consortium.

In this regard, in accordance with the terms of the Final Production Sharing Agreement of the Karachaganak project, Kazakhstan filed a lawsuit in international arbitration to protect its rights. However, taking into account the long-term experience of cooperation, the parties have found a mutually beneficial way to resolve the dispute amicably in the negotiation process.

Thus, to secure the agreements, the parties signed a document, according to which the consortium will pay Kazakhstan a monetary compensation in the amount of $ 1.111 billion.

Also, changes will be made to the mechanism of production sharing of FPSA, which will provide the republic with additional revenues from the project in the amount of about $ 415 million by 2037 at a price of $80 per barrel.

The consortium will provide Kazakhstan with a long-term loan for 10 years for the construction of an infrastructure project in the amount of $ 1 billion, or pay the equivalent value of the loan (in case of refusal of the republic from the loan) in the amount of about $ 200 million.

Thus, the aggregate monetary value for Kazakhstan is more than $ 1.7 billion, of which in the coming years the state will receive about $ 1.3 billion.

In addition, the government agreed on a consortium's commitment to timely implement important investment projects for the future development of Karachaganak. Preliminarily, the volume of investments is estimated at up to $ 5 billion with a possible additional increase in revenues for the republic until 2037 at about $ 23.5 billion (or about $ 6.4 billion in NPV10) at a price of $ 80 per barrel.

The parties also agreed on possible supplies of oil and gas on commercial terms for local refineries and for the development of a gas chemical complex in the West Kazakhstan region.

The Karachaganak project is implemented within the framework of the Final Production Sharing Agreement (FISP) concluded between the government of Kazakhstan and the alliance of companies represented by British Gas (Shell) with 29.25 percent, ENI with 29.25 percent, Chevron with 18 percent, Lukoil with 13.5 percent and KazMunaiGas JSC with 10 percent of the equity participation. The agreement was signed on November 18, 1997 for a period of 40 years.

In 2017, the actual production totaled 11.2 million tons of liquid hydrocarbons (target production was 10.7 million tons) and 18.9 billion cubic meters of natural gas (target of 18.3 billion cubic meters). In 2018, it is planned to produce 10.887 million tons of liquid hydrocarbons and 18.37 billion cubic meters of natural gas.

Source: EvaluateEnergy® ©2021 EvaluateEnergy Ltd