Kashagan Work May Be Halted on Environment Violations

ALMATY, Kazakhstan Aug 21, 2007 (Dow Jones)

Kazakhstan's Environment Minister Nurlan Iskakov said Tuesday that Eni SpA-led (E) Agip KCO development of the giant offshore oil field Kashagan might be suspended because of environment violations, Interfax news agency reported.

"I would like to inform you that work at Kashagan might be totally suspended," Iskakov told a government meeting, according to Interfax. "We are now conducting a planned audit and we have all the grounds to believe that the operator is not complying with ecology legislation of Kazakhstan."

Kazakhstan Today news agency quoted Iskakov as saying his ministry "is obliged to recall the permission (to develop the oil field) as further implementation of the project will cause an irreversible ecological damage."

He said that his ministry has already informed chief prosecutor's office and the Energy Ministry of the Kashagan situation. Iskakov said the Energy Ministry is the government agency authorized to make a final decision.

Eni has informed the Kazakh government of the second delay of the start of production at Kashagan to 2010 from 2008 because of technical challenges and rising costs of the project that is in the Kazakh part of the Caspian Sea.

The remarks by Iskakov follow Kazakh Prime Minister Karim Masimov's remarks that Eni might be removed as operator of the project as a result of the dispute.

"We are very disappointed with the execution of this project," Masimov said earlier in an interview with the Wall Street Journal. "If the operator can't resolve these problems, then we don't exclude their possible replacement."

Iskakov's comments are likely to be used as part of pressure in ongoing negotiations with Eni over the delay and rising costs of the projects.

The Kazakh government has said that the overall planned costs at Kashagan rose to $136 billion from $57 billion.

Masimov told his officials to make a decision after Economy Minister Bakhyt Sultanov said that the government is going to lose significant revenues because of the Kashagan delay.

Kashagan is estimated to hold recoverable reserves of 13 billion barrels.

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