Kazakhstan’s Kashagan claims against big oil firms now reportedly top $150bn

Kazakhstan’s Kashagan claims against big oil firms now reportedly top $150bn
Kazakhstan appears disappointed by output from its giant offshore Kashagan oilfield in the Caspian Sea. / cc
By bne IntelliNews April 18, 2024

Kazakhstan is now reportedly seeking a compensation sum in excess of $150bn from the oil majors developing its giant offshore Kashagan oilfield in the Caspian Sea, after adding a $138bn claim for lost revenue to a previous $15bn claim over costs. Anonymous sources with knowledge of the matter on April 17 briefed Bloomberg on the huge increase in the demand.

The demand to recoup lost Kashagan revenue is reportedly based on estimates of revenues lost because the oil giants developing the field have, it is claimed by officials, not fully delivered on production output they pledged to the government.

In April 2023, Kazakhstan initiated arbitration proceedings against the majors involved in the Kashagan and Karachaganak oil field projects. The claims initially included $13bn for costs deducted under profit-sharing agreements for Kashagan and $3.5bn for the Karachaganak development.

Under the profit-sharing agreements, the companies can deduct certain costs from income before sharing profits with the Kazakh government.

The North Caspian Operating Company (NCOC) consortium of companies developing Kashagan—Eni, Shell, TotalEnergies, ExxonMobil, KazMunayGas, Inpex and CNPC—confirmed to Bloomberg that it is involved in several disputes related to the application of certain provisions of the Kashagan production sharing agreement, subject to arbitration. 

Kazakhstan’s energy ministry stated on April 17 that it was not authorised to disclose the specifics of the arbitration claims. Describing the issue as an “exclusively commercial disagreement”, the ministry said that both “sides are going to resolve [it] within the arbitration framework”.

The dispute highlights the challenges faced by foreign companies operating in Kazakhstan and stands as just one of several ongoing court battles between energy majors and the government over project costs and delays.

The Kashagan field is considered one of the largest oil discoveries in recent decades. The consortium developing it has so far invested approximately $55bn in the project, which pumps around 400,000 barrels per day.

A spokesperson for Eni confirmed to Reuters on April 17 that Kazakh authorities had commenced an arbitration procedure against the consortium partners and terms of the arbitration were confidential.

"Whilst we are reviewing the complex allegations, we do not believe [as a general comment] the basis for the claims or the specific amounts of compensation requested to be reasonably substantiated or credible," the spokesperson said.

Kazakhstan is part of the OPEC+ group of oil producers.