Shell and Eni-led consortium agree $1.1bn profit-sharing settlement with Kazakhstan

Shell and Eni-led consortium agree $1.1bn profit-sharing settlement with Kazakhstan
Shell and other stakeholders in the field have also agreed to further investment to drive up future revenue. / Catherine Hammond.
By bne IntelliNews October 2, 2018

The Shell and Eni-led consortium of energy companies operating Kazakhstan’s giant Karachaganak gas condensate field are to pay $1.1bn to settle a long-running profit-sharing dispute, the Kazakh Energy Ministry said on October 1.

The development should finally put an end to the disagreement, the settlement of which was pushed back time and time again this year and last year. The Karachaganak project accounts for 49% of Kazakhstan’s total gas output and 18% of its oil output.

Kazakhstan filed a $1.6bn claim against the consortium developing the Karachaganak field, Russia’s Lukoil announced in April last year. The claim, at the time, amounted to an attempt by Astana to source additional funds from the oil industry despite the difficult circumstances caused by the slump in world oil prices. The recovery seen in oil prices, however, appears to have made it possible for Kazakhstan to obtain most of its claim in the form of the settlement.

Moreover, Kazakhstan and the consortium are to amend the terms of their production-sharing agreement allowing the Central Asian nation to in future receive a higher share of revenues from Karachaganak, discovered in 1979. The resulting extra income is set to amount to $415mn per year by 2037 at the Brent crude price of $80 per barrel, the ministry said.

The consortium will additionally provide a $1bn long-term loan to Kazakhstan for infrastructure development.

Billions more in investment
The Energy Ministry added that the companies involved in Karachaganak have committed to investing $5bn more in the field so that it will produce billions in additional revenue. Moreover, they are said to have agreed to supply feedstock for Kazakh refineries and chemical plants on commercial terms. Kazakhstan is developing its petrochemical industry as a way of obtaining more added-value from its vast hydrocarbon riches.

Both Shell and Eni jointly operate the Karachaganak project in northwest Kazakhstan’s Uralsk Region. Each holds a 29.25% stake. The rest is owned by Chevron Corp (18%), Lukoil (13.5%) and Kazakhstan’s state-owned KazMunayGaz (10%).

Karachaganak, Kashagan and Tengiz are the three largest Kazakh oil and gas fields. Karachaganak is thought to contain 1.2bn tonnes of oil and gas condensate and more than 1.35tn cubic metres of gas.

Kazakhstan’s oil output in the first eight months of 2018 grew by 5.3% y/y to 60mn tonnes, Energy Minister Kanat Bozumbayev told a government meeting on September 12.

The increase was mostly driven by an ongoing acceleration in the output of the giant Kashagan field alongside growing world oil prices. Kashagan boosted its output to 8.4mn tonnes in the first eight months, exceeding its full year production figure for 2017.

Kazakhstan produced 86.2mn tonnes of oil in 2017, up from 78mn tonnes in 2016, where Kashagan alone produced over 7mn tonnes.