Tengiz: Rattling the Cage

The last time Gani Kasimov attracted big attention, it was for throwing a vase at a television interviewer while running for president of Kazakhstan back in the late 1990s. Now the Kazakh parliamentarian has targeted Chevron, calling for the suspension of its supergiant Tengiz oilfield for alleged environmental violations.

Given the perilous atmosphere for oil majors in the region -- the erosion of Big Oil's positions in Russia, and the threat of the same at a sister field in Kazakhstan, the supergiant Kashagan -- Chevron Chairman Dave O'Reilly hopped on the corporate jet to see President Nazarbayev.

Whatever was said in their meeting today, O'Reilly obviously asked Nazarbayev whether he could tell journalists -- and by extension shareholders -- that Chevron was not in a similar fix as its industry rivals. Here is a paragraph from the Reuters story: Mr. O'Reilly quoted Mr. Nazarbayev as telling him that “Tengiz is an excellent example of how the government and a foreign investor can work together successfully,” according to the Kazakhstan Today news agency. “Today during our meeting both the president of Kazakhstan and the prime minister expressed support for our company's activities,” he said.
Read story

Here is the first paragraph of The Wall Street Journal account of the Kasimov remarks that triggered the stir yesterday: In a sign of rising nationalism and intensifying pressure on foreign investors in oil-rich Kazakhstan, a senior Kazakh lawmaker called for a huge oil project run by Chevron Corp. to be shut down over alleged environmental violations. Read story

Steve's comment: Tengiz is part of the same geologic structure as Kashagan, the field that is currently under suspension for alleged environmental violations and contract demands. The two fields are among the biggest in the world.

It is in fact probable that at some point the Kazakhs will deliver demands for contract revisions involving profit-sharing to Chevron. That is the direction of events in the region, and around the world, and there is no reason to presume that Chevron will be exempt.

But it is premature for that to happen now. Kazakhstan is already embroiled in an enormous flap with many of the world's biggest oil majors over Kashagan. Nazarbayev is no Hugo Chavez -- a seasoned strategist on the geopolitical stage, he will settle one battle before moving on to the next.

So what is Kasimov up to? It is quite possible that, as with his antics during the 1990s presidential campaign, he was simply mouthing off in order to attract attention. For now, I go with that explanation -- Kasimov is not in the ranks of Kazakhstan's serious figures.

But the impact is important. In the past, Chevron has carried with it effective diplomatic status -- Washington has been fully behind its Kazakhstan venture since it first embarked on it in 1990 -- and the field is a huge portion of the company's future and current reserves. Its share price would plummet if its share of the field were threatened.

One must also take into account that the biggest company of all -- Exxon Mobil -- also owns 25% of the field. Exxon has so far stood firm against contract erosion in both Venezuela and Russia.

Whether or not he sanctioned Kasimov's statement, Nazarbayev has no doubt taken note of what happened when he rattled Chevron's cage. That will be incorporated into his strategy in the probability of higher demands down the road for Tengiz.