Full Kashagan Accord with Kazakh Govt Reached in June

Kashagan Field
(Click to Enlarge)

ROME (Dow Jones Newswires), July 31, 2008

The consortium Eni SpA leads in developing the giant Kashagan oil field reached "full settlement" over the project with the Kazakh government and will be finalized in a definite accord by October, Eni Chief Executive Paolo Scaroni said Thursday.

"In June full settlement" for Kashagan was reached with the government of the Central Asian country, Scaroni said in a conference call on its second-quarter results.

In a slide to the presentation, Eni said the "experimental" program is to be approved by October 15, 2008. The slide also showed that 2008 budget and outstanding contracts were approved.

Kazakhstan and the consortium, which includes oil majors such as ExxonMobil Corp., Royal Dutch Shell PLC and Total SA, have been in a dispute over repeated delays in production and cost overruns.

Other consortium members include Kazakh state-controlled oil company KazMunaiGas, ConocoPhillips and Japan's Inpex Holdings Inc.

Once the experimental phase is over, Eni hands over operatorship to Shell until each of the biggest companies gets a section of the project, said Eni new head of exploration and production, Claudio Descalzi, on the call.

Scaroni said the new revised budget with precise figures for the experimental phase should be made available in October.

The Eni-led consortium and the Kazakh government agreed to a "variable value transfer mechanism extended to higher oil prices," said Eni. There is no change if the price of crude falls to less than $85 a barrel.

It means " the higher the oil price, the lower our (output) take," said Scaroni.

Eni also said the sides agreed to "disincentives" for production start-up after October 2013. It didn't say what these are.

The beginning of production at Kashagan has been postponed four times since the original start date of 2005.

Copyright (c) 2008 Dow Jones & Company, Inc.

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