Free Lunch at Kashagan
Kazakhstan has offered up another important piece to the jigsaw puzzle in terms of what it wants to allow development to proceed on the suspended supergiant Kashagan oilfield.A free ride.
The Kazakhs, whose move on Kashagan has made some wonder whether the nation is aping Russia's oil nationalism, had already made it clear that they want at least joint control of the field, the largest oil discovery on the planet in more than three decades. Until they get it, plus a big cash payment, they are holding up field development.
Customarily, in order to be operator of an oilfield, one's share must at least match the largest stake held by any other partner. That's meant to ensure that the operator has at least as much investment at stake -- in other words as much to lose if things go wrong -- as anyone else involved. The current operator, Italy's Eni, has 16.6% of Kashagan, as do Exxon Mobil, Shell and France's Total.
So one apprehension regarding Kazakhstan's demands has been who would be called upon to sell part of their ownership in order to increase the state's current 8.3% share and make it equal to or greater than the rest.
That seemed one of the hardest likely nuts to crack in talks under way with the Kazakhs, since none of the foreigners was likely to want to give up some of their share. Then there was the matter of getting the state to pay a market price certainly exceeding $1 billion. (BG sold its 16.6% of the field for $1.8 million in March 2005, a time of much lower world crude oil prices.)
But in a statement Thursday, Energy Minister Sauat Mynbayev raised the idea of the state obtaining joint control without increasing its stake.
"It's not essential for us to raise the share. That's not the main question," the minister said, quoted by Reuters. "What is essential is to approve or disapprove of Kashagan's development plan and budget." Read Reuters story
Kazakhstan seems not to be guilty of petro-state nationalism as much as trying to get the country's so-far horribly managed jewel in the crown to pay out.
But if Kazakhstan's KazMunaiGas obtains an equal footing without sharing equally in investment and field development costs, that would seem to instantly and considerably raise the foreign partners' risk profile for Kashagan.
And one wonders how company lawyers would get that past their boards of directors and shareholders back home.
Labels: Caspian, contract renegotation, ENI, Exxon, kashagan, Kazakhstan, oil, Shell, Total
2 Comments:
Unless I've missed something, Mr. Mynbayev's idea is absurd. The only way to change the level of control is through changing one's equity. Of course, assuming one's operating in a market economy (which Kazakhstan officially has). How does he propose to accomplish that feat? That the state explicitly reserves special rights ? That' already not market economy. But even if the foreign companies accept that proposition they will want to be adequately compensated for having their property rights curtailed. Which brings us back to the basics: it can be done only through more investment by the Kazakh government which would dilute foreign partners' stake and thus increase Kazakstan's control.
These claims of some mysterious non-economic control are not helpful. They are especially jarring given Kazakhstan's track record: fifteen years of successful market-oriented reforms that have put Kazakh economy in the same league as those of Central Europe, far ahead of its neighbors.
Instead, Astana should focus on extracting compensation from Eni for all that unrealized oil revenue due to the multiple delays and cost overruns. The compensation should be commensurate with the loss: we are talking about a five year period when the oil prices are at all times' high. Are they demanding $10 bln? That's reasonable and it should be easy to show why.
Once they get Eni to agree to pay the compensation, they can offer to forgo some of the cash by converting a portion into more equity in the deal. That's the way to increase their control.
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