Expect More Oil Contract Demands on the Caspian
The notice given by Kazakhstan that it may seek a penalty from the developers of the much-delayed super-giant Kashagan oilfield is another sign of push-back by the former Soviet petro-states. The upshot - the likelihood is that there will be renegotiations of contractual terms on both sides of the Caspian in the coming several years. Among the main targets will be BP.
In fact, ENI-operated Kashagan deserves such treatment from Kazakhstan. Its 1997 contract, negotiated by James Giffen, includes a specific penalty clause that is triggered if first oil is not produced according to a specific timetable. That year for first oil was 2005, meaning the companies are already two years late with the probability that the first shipments won't come before 2011 or even 2012.
The indication is that Kazakhstan will leverage the missed deadline -- plus the current hostile oil environment to the north in Russia -- into a higher profit share.
This is just the beginning. After the oil is flowing from Kashagan, Kazakhstan is likely to push for more concessions. Kazakhstan's Tengiz oilfield, in which Chevron and Exxon Mobil hold 75 percent of the shares, is also likely to be under such pressure from the government.
Across the sea in Azerbaijan, the BP-operated offshore fields are also likely to face demands for contractual concessions in the coming years. Neither the leaders of Azerbaijan nor Kazakhstan are blind to the squeeze put on the multinational oil companies in Russia, and to one degree or another will follow suit.
In fact, ENI-operated Kashagan deserves such treatment from Kazakhstan. Its 1997 contract, negotiated by James Giffen, includes a specific penalty clause that is triggered if first oil is not produced according to a specific timetable. That year for first oil was 2005, meaning the companies are already two years late with the probability that the first shipments won't come before 2011 or even 2012.
The indication is that Kazakhstan will leverage the missed deadline -- plus the current hostile oil environment to the north in Russia -- into a higher profit share.
This is just the beginning. After the oil is flowing from Kashagan, Kazakhstan is likely to push for more concessions. Kazakhstan's Tengiz oilfield, in which Chevron and Exxon Mobil hold 75 percent of the shares, is also likely to be under such pressure from the government.
Across the sea in Azerbaijan, the BP-operated offshore fields are also likely to face demands for contractual concessions in the coming years. Neither the leaders of Azerbaijan nor Kazakhstan are blind to the squeeze put on the multinational oil companies in Russia, and to one degree or another will follow suit.
Labels: Azerbaijan, BP, Caspian, contract renegotiation, ENI, Exxon, Kazakhstan, oil, Russia
4 Comments:
What Kazakhstan seems to be doing is to enforce the penalty clause in the contract. So, the Kazakhs are perfectly within their rights.
What about Russia's actions in Sakhalin? Are the Russians also working within an existing agreement? How are their actions similar or dissimilar to those of Venezuela?
In Sakhalin, the Russians were technically within the agreement. But what they have done is force concessions by the manipulation of environmental law (the Shell case). I think the smart money is that Exxon will be next.
I think that the governments (or rather presidents) of the Caspian oil producing states will have to tread very carefully. They derive their leverage in dealing with the US, Russia and China from having the Western oil majors develop their oil fields. Should these companies decide that the squeeze put on them by the local governments does not make their operations profitable and leave, Azerbaijan and especially Kazakhstan would find themselves in a very difficult situation facing Russia's claims on its Near Abroad.
Hi Sri, thanks for the comment. I myself don't buy the unspoken threat that the oil companies would leave the republics, except that is under an outright expropriation. The reason is supply and demand -- whatever the squeeze they face in Russia and Kazakhstan, the oil majors have fewer and fewer places to replace their reserves. By one estimate, just 10 percent of the world's oil reserves are not in the hands of state entities or state-controlled companies. So that countries like Kazakhstan and Russia are in the driver's seat since to one degree or another they do allow foreigners to explore and produce. Company threats to leave are empty, in my view.
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