Kashagan Group In Talks With Government Over Oilfield's Future

Members of the international consortium developing Kashagan and the central Asian state's government will discuss changes to the contract that governs the project.

ALMATY, June 13 (Reuters) - Members of the international consortium developing Kazakhstan's giant Kashagan oilfield and the central Asian state's government will discuss changes to the contract that governs the project, which has seen massive cost overruns and delays.

The production sharing agreement (PSA) is due to expire in 2041. Industry sources say that foreign shareholders in the $50 billion project are keen to extend it to recoup higher-than-expected costs caused by repeated postponement of production deadlines.

Production at Kashagan, one of the world's biggest oil finds of recent times, was originally set for 2005, but only started last September.

However, output was almost immediately halted after the discovery of gas leaks in the pipeline network and may not restart until 2016, according to Kazakh Oil & Gas Minister Uzakbai Karabalin.

The North Caspian Operating Company (NCOC) on Friday said a memorandum of understanding was signed this week agreeing to discuss "the potential progression of future phases of development and production of the Kashagan project."

The Financial Times business daily on Friday cited a source close to the Kashagan project as saying that Kazakhstan had already agreed to extend the contract for the project.

"Discussions ... within the framework of this memorandum of understanding will continue in the months ahead to advance development plans," the NCOC statement said.

The members of the North Caspian Production Sharing Agreement are Agip Caspian Sea B.V., CNPC Kazakhstan B.V., ExxonMobil Kazakhstan Inc., Inpex North Caspian Sea Ltd, KMG Kashagan B.V., Shell Kazakhstan Development BV and Total E&P Kazakhstan.

(Reporting by Dmitry Solovyov; Editing by Erica Billingham)

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