Kazakhstan’s Energy Ministry told partners in the giant Kashagan oil venture it will press ahead with arbitration in a $13 billion dispute, a blow to the international majors that had hoped for a settlement.
(Bloomberg) — Kazakhstan’s Energy Ministry told partners in the giant Kashagan oil venture it will press ahead with arbitration in a $13 billion dispute, a blow to the international majors that had hoped for a settlement.
The government has gone back on signals in July that it may cease arbitration, people familiar with the matter said, asking not to be named discussing private information. While the door for talks remains open, the ministry has rejected a proposal that Kazakhstan drop its claims in exchange for investment pledges.
Companies including Eni SpA, Shell Plc, Exxon Mobil Corp. and TotalEnergies SE — which have invested about $55 billion in Kashagan — are being sued by the government amid allegations of unapproved spending.
The row in Central Asia’s largest oil-producing nation underscores the difficulty of developing big energy projects with complex production-sharing agreements. Shell Chief Executive Officer Wael Sawan said last month that the company’s future spending in Kazakhstan would depend on whether the government offers the right investment climate.
Read More: Shell Says Kazakh Investments Hinge on Stability Amid Disputes
Kazakhstan claims the Kashagan partners should not deduct costs amounting to $13 billion. If the state is successful, it could receive a greater share of revenue from the field.
North Caspian Operating Co., the joint venture that runs the project, said the partners “believe they have acted in accordance with the production-sharing agreement, Kazakhstan’s legislation and applicable standards and best practices.” NCOC cited “a number of contentious issues,” but declined to elaborate given the “confidential nature of the proceedings.”
The companies are also facing a $5.1 billion fine for allegedly breaking environmental rules. While they have denied being at fault in both cases, they have been searching for a way to settle the disputes with the government, Bloomberg reported in May.
Kazakhstan’s Energy Ministry declined to comment, as did Total and Shell. Exxon and Eni didn’t respond to an email seeking comment.
One potential settlement that had been under discussion would have involved the construction of a gas-processing plant to serve Kazakhstan’s domestic market. That suggestion wasn’t accepted, the people said.
–With assistance from Francois de Beaupuy, Laura Hurst and Alberto Brambilla.
(Updates with Shell declining to comment, Eni not responding in eighth paragraph.)
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