China close to securing stake in giant Kazakh oil field Kashagan

By bne IntelliNews July 1, 2013

bne -

China National Petroleum Corp (CNPC) is set to seal the acquisition of an 8.4% stake in Kashagan, the giant oil field off Kazakhstan's Caspian coast, sources claim. With a deal said to be due as early as the first week of July, the Chinese state-owned company appears to have beaten India to the punch, just as Kashagan looks set to finally start production.

India's state-owned OVL has been on the verge of purchasing the stake in the North Caspian Operating Company (NCOC) - the consortium developing Kashagan - for months, after agreeing to buy it from US company Conoco Phillips. However, Astana has been delaying the deal, and reports that it had decided instead to hand the asset to China have been growing stronger.

Now, Kazakh state-controlled KazMunaiGas is expected to acquire the stake and then sell it on to CNPC. No official announcement has yet been made, but unnamed sources told Bloomberg on June 28 that a deal could be announced within days.

CNPC is expected to pay $5bn for the stake, the newswire claims. That's the same price that OVL - a subsidiary of Indian state oil and gas company ONGC - agreed to pay Conoco Phillips back in November. However, according to an unnamed source quoted by Trend, the Chinese bidder is prepared to pay well over the odds.

According to the Azeri news agency, CNPC could agree a deal worth $15bn. Whether a coincidence or not, that is close to amount Kazakhstan currently owes China. Beijing is also reported to have offered access to one of its ports to give the Kashagan consortium access to the Pacific, while the consortium developing the field may agree to export Kashagan crude to a refinery in China's Sichuan province.

Having invoked legislation allowing Astana the final say on "strategic" investments in the country to delay the deal, the Kazakh government was expected to make a decision on the sale of the stake to OVL by May 25. However, those negotiations have dragged on, with Chinese officials understood to be lobbying for the asset. Kazakhs President Nursultan Nazarbayev confirmed in late June that the government is considering its options.

China has been steadily increasing investment in Kazakhstan's oil and gas sector, as it seeks to secure steady supplies of hydrocarbons to meet growing domestic demand. Around 25% of Kazakhstan's oil output is now produced by Chinese companies. Although India has a similar thirst for energy, and is involved in other large Kazakh projects, the two countries do not share a border, making the logistics of exports challenging.

Meanwhile, the North Caspian Operating Company (NCOC) said on June 30 that production facilities at Kashagan have begun to start up. Due to the size and complexity of the project, the launch of oil production is still to come - despite an initial date of 2005. Kashagan still requires several steps to progressively ramp output, NCOC said in a statement. The company did not say when the first oil would begin flowing from the field.

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