Shell Says Kazakh Tax Laws Not Favorable to Oil Companies

Shell Kazakhstan President Martin Ferstl has said that Kazakhstan's tax laws in the area of oil operations are not as favorable for oil companies as similar laws in many other countries that have hydrocarbon deposits.

Speaking at the KIOGE-2004 international oil and gas conference in Almaty, Ferstl said that his opinion is that tax conditions for oil firms seem somewhat tough by international standards today.

Referring to calculations by a number of major foreign oil companies operating in Kazakhstan, he said that applying the country's new tax regime to sea oil operations will bring a less-than-10%-return on investments to oil firms. He said that this is not enough to justify production, market, transport and other risks.

An about-15%-return on investments is a good option, Ferstl said, expressing confidence that the Kazakh government will take this suggestion into consideration.

Voicing optimism over prospects for foreign oil companies' cooperation with Kazakhstan, he said that Shell would not have invested $2 billion in Kashagan field if it had not felt that the government was not going to seek a balance of interests.

Ferstl did not rule out that Shell's investments in the Kashagan project may exceed $3 billion in 2005.

Shell holds 16.67% of the Agip KCO international consortium, which is engaged in drilling operations at a number of oil-bearing sectors of the Kazakh part of the Northern Caspian shelf. Kashagan is the largest oilfield in this project. E Apart from Shell, the consortium also includes ENI (operator with a 16.67% share of the project), TotalFinaElf (16.67%), ExxonMobill (16.67%), Inpex (8.33%), Phillips (8.33%), as well as BG (16.67%), which has announced plans to withdraw from the project. Its share will be purchased by the consortium's other members and Kazakhstan.

Agip KCO was set up following the signing of a 40-year production sharing agreement in 1997. It plans to start producing oil as part of the Northern Caspian project in 2007-2008. Agip KCO has estimated the Kashagan field's extractable reserves of oil at between 7 billion barrels and 9 billion barrels, while the oil structure's total geological reserves are projected at 38 billion barrels.