Two Hours in Astana
My mother's lawyer boyfriend once offered up some legal advice when I was in a dispute with a contractor: It'll all be settled on the courthouse steps. In other words, even though logic says it's less stressful to resolve one's differences at once, and the final deal often doesn't differ much from what's offered along the way, the actual practice is that one or both parties simply won't walk over the line until the very last possible moment.So it apparently was yesterday in a settlement of the months-long dispute over the supergiant Kashagan oilfield. Recall that new development of this 13-billion-barrel behemoth has been stalled since the summer over a five-year delay in first oil, and a huge cost overrun.
Take a look at the timeline of the weekend events. At the invitation of Kazakhstan's Nursultan Nazarbayev, the chairmen of most of the world's biggest oil companies had readied to pile in to the capital of Astana for a resolution last Friday. They were put off for two days before meetings finally commenced. The trouble was already apparent when Christophe de Margerie, CEO of France's Total, met with the state oil company on Saturday, then simply left town; that's something that a CEO simply doesn't do when an important president has summoned you.
That left Exxon CEO Rex Tillerson, Eni's Paolo Scaroni and Shell's Jeroen van der Veer meeting for nine full hours -- until midnight -- at a restaurant with Prime Minister Karim Masimov.
At 1:56 a.m. today local time, Bloomberg's Nariman Gizitdinov and Lucian Kim filed the following lead paragraphs in a story:
Eni and partners failed to reach an agreement with the Kazakhstan government over stakeholdings in the Kashagan oil field, Eni Chief Executive Officer Paolo Scaroni said, adding he doesn't expect to return to the central Asian nation ``for a long time.'' ``We haven't reached an agreement yet,'' Scaroni said in an interview early today in Astana, the Kazakh capital, after a nine-hour meeting with Kazakh Prime Minister Karim Masimov and the chief executives of companies including Exxon Mobil and Royal Dutch Shell.
Less than two hours later, at 3:49 a.m. local time, Reuters filed the following:
What happened during those two hours?
The deal on the courthouse steps. Here is a pretty good Bloomberg piece on the deal. Here's Guy Chazan's from The Wall Street Journal.
By the look of things, Masimov and the state oil company pushed matters pretty far and seemed so unlikely to budge that, to put it bluntly, the CEOs of both Eni -- the field operator -- and Total threw up their hands.
At which point Nazarbayev probably stepped in and told his negotiators to agree more or less with the last deal on the table. This is conjecture, but seems likely in the context of how previous disputes in Kazakhstan have been settled.
“Now, a fair decision has been made,” the president’s official web site quoted him as saying in a meeting with company representatives today after the resolution was announced. He said, “After long and difficult negotiations, the Kazakhstani side has protected its interests. … We have prevented a breach of the contract, which was possible if we did not agree.”
Takeaways from the deal: According to The Wall Street Journal, the companies will make an immediate, good-faith payment of $300 million to Kazakhstan. Over the life of the contract, which expires in 2041, they will pay an additional $5 billion to the country, depending on the price of oil. And they will begin to pay the money earlier than previously agreed.
Kazakhstan will pay a sweetheart price of $1.78 billion for about 8% of Kashagan, raising its share of the field to 16.8%, the same as Total, Shell, Eni and Exxon.
After Kashagan comes on line in 2011, Eni will lose operatorship. Kazakhstan appear to have won the final say on how the field is run, with the four top shareholders divvying up duties for developing it.
Photo: jordigraells
Rights: Creative Commons
Labels: Caspian, Exxon, kashagan, Kazakhstan, oil, oil book, russia book, Shell, Total
4 Comments:
If the delays and cost overruns are primarily the fault of the operator and the other foreign partners and not merely the technical challenge offered by the field...
... then why would Kazakhstan push for a substantive change in the way the pre-production phase of the project is run, replacing Eni now?
That Eni keeps its role as operator until production starts, and then loses it, does more to give me the impression that this is little more than a shakedown. If Eni is incompetent why not remove them from the operatorship now instead of later?
Welcome DM Jossel. My understanding is that the major partners are all furious with Eni, which is far over-extended as a result of its embarrassment of successes in both Kazakhstan (Kashagan and Karachaganak) and Russia (Bluestream, South Stream, and possible production deals with Gazprom). There is a technical challenge, but not that much different from its sister field, Tengiz, whose challenges have been largely surmounted.
One gets the impression, however, that the industry is so strapped for skilled manpower that there is simply no way to efficiently replace Eni, which committed the manpower years ago. So Exxon, Total and Shell are simply watching over the Italians like a hawk.
Not that the Kazakhs won't profit from the standoff. Of course they will.
Thanks for the comment. Steve
Steve, do you know what the net outcome is here? You wrote earlier that the original contract was heavily in favor of the oil companies. Now Kazakhstan is paying half the price of $1.4 for the extra equity. But it is also reducing the penalty from $7-$10 bln to $2.5-$4.5 bln. Who is the winner here and why?
Hi Mark. I'm not going to hold my breath expecting Kazakhstan or the companies to disgorge the details of this deal. The Kashagan folks, for instance, are almost pathologically secretive. I'm particularly interested in whether Exxon ended up with a better deal than the others, as it sought.
However, from what has come out it looks fairly win-win. Kazakhstan got more money, an equal stake, and control after first oil. The companies got to keep most of their position, most of their cash, and most of their booked reserves.
I wouldn't say we've heard the end of it. And, despite Kazakh claims to the contrary, I do expect them to go after Tengiz and Karachaganak.
Thanks for the question, Steve
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