Accumulating Shoes

We now have a better understanding of why the consortium developing the biggest new oilfield on the planet has expeled its boss, Italy's Eni -- yet another two-year delay has been announced in first oil from the offshore Kazakhstan field. From a contractual startup of 2005, the Eni-led consortium now says it will produce its first barrels from Kashagan as late as 2013, according to a statement by Kazakhstan Energy Minister Sauat Mynbayev.

So yet another shoe drops in Kazakhstan. This pearl of a field -- depending how technology advances, Kashagan contains anywhere from 15 billion barrels of recoverable reserves and up. That's fifteen elephants, the industry term for a monster oilfield -- has been beset by so many delays that one wonders when it truly will come on line.

Mostly at fault are the problems bedeviling the entire industry -- spiraling production costs, and a shortage of equipment and labor (Note to college-age O and G readers: if you study engineering or geology, you are all-but guaranteed a well-paying job).

Yet Eni has long seemed far over-stretched. From a tiny state-run oil company in the early 1990s, it has grown into a hugely successful heir to the Seven Sisters, the most successful of the West's Big Oil companies at finding comfort with the world's autocrats. Where its brethren bicker with Hugo Chavez and Vladimir Putin, Eni has found a comfortable embrace.

But that's resulted in an embarrassment of riches. Eni has too much on its plate. A few months ago, Eni lost its operatorship of Kashagan. Publicly that act was attributed to Kazakhstan's new assertiveness and demand for an equal share of Kashagan. But it's clear that Eni's partners in the field themselves would have acted sooner or later.

The problem with banks: My former colleagues at The Wall Street Journal published a scoop yesterday on the ongoing saga of some $80 million in Swiss deposits belonging to Kazakhstan President Nursultan Nazarbayev and a couple of associates (since a subscription is required to view, I found this link to another site). It's written by Glenn Simpson, Susan Schmidt and Mary Jacoby.

Some nine years after the money was frozen in a money-laundering investigation (the cash came from U.S. oil companies that got deals in the 1990s in Kazakhstan, including at Kashagan), the Kazakhs have said they are willing to give up the money for charitable purposes. Yet the money remains frozen, according to the piece, in part because the U.S. says the charities that the Kazakhs have in mind are too closely linked to the Kazakh government.

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Latest Score in Love versus War

In recent months, Italy’s ENI has seemed to have hit upon the winning formula in Big Oil’s battle for survival against the march of petro-states across the globe. ENI chairman Paolo Scaroni’s approach has been simple – jump in bed with your adversary. So you have had ENI saddling up with Russia’s Gazprom, Hugo Chavez’s PDVZA, and most recently Qatar Petroleum.

Scaroni’s strategy has been the polar opposite and, so far, more successful than ExxonMobil’s confrontational style toward the more assertive petro-states such as Russia and Venezuela.

But a scoop by Guy Chazan in today’s Wall Street Journal shows that co-habitation goes only so far. Turkmenistan, for instance, is so miffed with ENI that it refuses to issue visas to its senior executives. That’s important, because Turkmenistan is one of the world’s only largely untapped petro-states welcoming exploration offers from Big Oil. Chevron, BP and others have put much effort into winning access to fields there.

Based on ENI’s record, don’t be surprised if Scaroni himself tries to swoop into Turkmenistan to smooth over the situation.

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Kashagan: Papa Calls Together the Families

It appears that Kazakhstan's Nursultan Nazarbayev is prepared to pronounce judgment on the long-running dispute with the foreign companies developing the supergiant Kashagan oilfield.

Gabriel Kahn, my former colleague at The Wall Street Journal, reports that Nazarbayev has summoned the companies for a meeting with him and Prime Minister Karim Massimov in the capital of Astana next month.

For Kazakhologists, that can mean only one thing -- he will announce to the companies how the settlement will look. Thus, the six-month-old dispute over this 13-billion-barrel field -- the largest discovery in three decades -- appears near a conclusion.

As Kahn quotes Eni chairman Paolo Scaroni, "For me it is difficult to imagine that President Nazarbayev and Prime Minister [Karim] Massimov meet the most important oil companies without a resolution."

Scaroni is right. This is Nazarbayev's style. He's been known, for instance, to scratch out a number on a piece of paper, and hand it to his foreign interlocutor. That's regarded as written on a tablet.

The meeting is scheduled Jan. 11th.

The dispute started because of the Eni-led consortium's over-budget spending and five-year tardiness in field development. As a settlement, Kazakhstan wants to double its current 8.3% holding in the field, plus a cash settlement, and to receive its oil profits on a bigger scale and faster than written into the current contract.

Nazarbayev's intervention is probably welcome news. He's no Hugo Chavez -- look for a decision that all parties can live with. Even malcontent Exxon may grudgingly accept.

Dumbest story on Kashagan: The leaks have been few from the inner chambers in which the Kashagan talks have taken place. Yet in my view the news coverage has been fairly impressive. Even if it hadn't been, I'm not a press-basher, and as a matter of habit almost never go after other writers.

However, a piece by Motley Fool I think begs scorn. This article, posted yesterday, attributes the stand-off to yet another example of "government heavy-handedness," and chalks it up as more proof that "those who follow energy carefully should be concerned about an expanding outbreak of government strong-arming in a number of important producing nations."

In other words, Motley Fool has precious little knowledge of this dispute, and rather than studying up on it so as to accurately inform its investor readers, has conflated Kazakhstan's position with those of other petro-states in the world. As if to underline this point, Motley Fool boasts that the analyst -- David Lee Smith (I am conveniently providing his email address) -- "really has never set foot in Kazakhstan."

For the record, the dispute has nothing to do with Russian- or Venezuela-style petro-nationalism, and a lot to do with incompetence on the part of the oil companies, and an inflexible contract written during the days of $15 oil.

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Kazakhstan Wants Equal Ownership Status at Kashagan

The news today in one of the world's great oil disputes is that Kazakhstan has made public a demand for an equal share in the supergiant Kashagan oilfield. Bloomberg reports that six of the field's seven partners have agreed.

Work at Kashagan, the world's largest oilfield discovery in the last few decades, has been suspended while Kazakhstan and an Italian-led foreign oil consortium settle their differences. Kazakhstan is upset that, in a period of $90-a-barrel-oil, the field will be at least five years late coming to market; in addition, costs are nearly double what was originally estimated, and Kazakhstan will have to wait several more more years for some profit until those costs are paid off.

It's been clear that the Kazakhs want more control over the field, plus more money, and earlier receipt of it. The announcement today, however, is the first concrete statement that the country expects a full share of the field. That would approximately double Kazakhstan's current 8.3% holding.

What wasn't said is the terms: Does Kazakhstan intend to pay for the share? If so, are they talking cash? And if they are, how will the price be decided? Or will the companies carry the Kazakh interest?

And who is the holdout on agreeing? Given its record, a solid guess would be Exxon Mobil, which previously said it would consent only if the country extends the contract beyond its current 40-year life.

Kazakhstan is unlikely to agree to that condition when the dispute revolves around fault on the part of the foreign companies.

Exxon, which like Total, Eni and Shell has 18.5% of Kashagan, still behaves as though it's in the driver's seat. But the final settlement -- according to Kazakhstan it will be tomorrow; the companies say it will be later this month -- is likely to reflect a much stronger position for Kazakhstan.

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Satisfying the Kazakhs at Kashagan

My former newspaper, The Wall Street Journal, is reporting that the Italian-led consortium in Kazakhstan has signed a "memorandum of understanding" toward settling their dispute at the supergiant Kashagan oilfield. They will now have until Dec. 20th to talk.

This is a huge issue -- involving 13 billion barrels of oil at a time big private oil companies are having momentous trouble finding new reserves to back up their value. The players include the biggest names in the business -- Exxon, Shell, Total, Eni, ConocoPhillips and others.

But today's announcement smells like the boilerplate Soviet-era "protocol," the worthless pieces of paper that two interlocutors would sign at the drop of a hat to demonstrate continued good will, or simply to show their bosses some sign of progress.

The two sides have much separating them.

Yesterday, the WSJ's Guy Chazan reported that a chief stumbling block is Kazakhstan's demand for a $7 billion penalty payment. According to the report, the companies want to pay just $4 billion. I suspect that is not a key stumbling block, as they'll no doubt settle at a middle point between the two sums.

This is only conjecture, but I'd say the bigger obstacles must include how to meet Kazakhstan's demands for a larger share and co-management of the field. And, possibly more important, there's Kazakhstan's demand for an earlier and bigger share of the proceeds once oil sales begin in 2010 or later.

When you are discussing a one-time-only penalty of a few billion dollars spread over several partners, it's painful but not overly so in a $90-dollar-a-barrel world. But when you are shaving percentage points off a field ownership share to give to the country involved (Kazakhstan), that's tens of billions of dollars spread out over decades.

And when these proceeds are demanded earlier than expected -- before the field development costs are paid off -- you are also increasing the companies' risk profile, the calculation that an investment could go south before it begins to earn money.

And, as much as everyone understands that Kazakhstan is in the driver's seat, and the companies have few places to turn for large reserves these days, the corporate lawyers will have something to say about any change in the risk involved. And so will the shareholders.

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How to Survive in the New World of Big Oil

Italy’s Eni continues to pioneer a successful path to survival in Big Oil’s treacherous new world – get in bed, don’t compete, with the world’s state-owned oil companies.

Eni’s flexible strategy has already made it Big Oil’s most successful company in both Russia and Kazakhstan. Today, it announced a fresh partnership with Russia’s Gazprom – to build a $14 billion natural gas pipeline between Russia and Europe. The pipeline directly challenges U.S. and European Union policy.

Called South Stream, the pipeline would ship Central Asian and Russian natural gas into southern Europe. It’s part of a three-pronged Russian strategy to deepen its dominance of Europe’s natural gas market. Russia is also building a natural gas pipeline called Nord Stream, which would serve northern Europe. A third line would feed cheap Turkmenistan and Kazakhstan natural gas into Nord Stream and South Stream.

Eni hopes to parlay its cooperation with Gazprom into natural gas development deals in Russia, which has recently sharply resisted such relationships with western oil companies.

Washington and the EU are fighting to blunt the market impact of the trio of Russian lines. They are doing so by championing rival natural gas lines from Turkmenistan into Europe. But, as today’s announcement shows, Russia is more advanced in the contest.

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Update on Demise of Big Oil: What Goldman Sachs Knows

Venerable Goldman Sachs, seemingly the only private institution to be actually earning money during the current international banking crisis, has issued a contrarian recommendation: Buy Eni, says the investment banker to the rich.

That's a good call. Why? Because, among all the Big Oil dinosaurs, Italy's Eni has figured out a modus vivendi with the new power on the block -- the world's national oil companies, specifically Russia's Gazprom.

Big Oil is on the way out -- its reserve base is cratering, and it's been supplanted as global oil king by state-owned companies in Venezuela, Russia, China, Saudi Arabia, Kazakhstan and so on.

But this is a fresh wrinkle: Who will survive in the decades ahead? One can quibble with Eni's methods and associations. But Goldman's call can be seen as a sign of confidence that this flexible company, with its carefully negotiated entanglements with Gazprom, is one model for a re-invented oil major.

I won't be surprised down the road to see an effective or actual merger of the two companies.

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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.

Kashagan: Two Ominous Notes

Kazakhstan's Prime Minister Karim Massimov has made it official: The country is seeking at least to share control of the supergiant Kashagan oilfield. Two items in his announcement today were of special note: The decision comes from the very top and was not dreamed up by some ambitious underling; and Kazakhstan is prepared with an unspecified second strategy should its demand be refused.

The development is important not just for the single field, though it is the largest found anywhere on the planet in three decades. It is also a weather vane for how Kazakhstan will treat the other two supergiant projects in the country -- the Tengiz and Karachaganak fields -- and whether the assertive practice will spread over the Caspian to Azerbaijan.

If the Italian-led consortium refuses to grant Kazakhstan co-operatorship of Kashagan, Massimov said, "We have Plan B. I'll tell you about that later."

Here is the first paragraph of the Financial times story: Kazakhstan demanded greater control over the giant Kashagan oilfield in the Caspian Sea on Thursday, complaining that inadequate management of the project by a foreign consortium led by Italy’s Eni had damaged the Central Asian republic’s economy and reputation as a reliable global energy supplier. Read the FT piece. Here is Reuters. And here is the AFP story.

Steve's comment: Often in Kazakhstan, as well as in Russia and elsewhere in the former Soviet Union, it is not clear whether a middle-ranking minister is speaking for his aspiring self, or fulfilling orders from above.

In this case, Massimov was crystal clear: President Nazarbayev is playing general, and he wants to exert equal control over what happens at the field. Here is the key quote: "According to the Kazakh president's orders and demands, KazMunaiGas should be a co-operator. I will not say anything about percentages at this stage," Massimov told reporters.

Therefore, the companies have very little wiggle room.

But what if they should choose to try to finesse that little bit of wiggle space that they might have? Plan B.

What is Plan B? One can only conjecture, but it can't be positive for Eni or the consortium.

As a reminder: This is not a pure example of national assertiveness. The consortium itself invited such action through its ineptness -- being at least five and probably seven years late in bringing first oil to market, and as of right now racking up double the development costs.

The Kazakhs Want Control

An article today in The Wall Street Journal advances the ball toward discovering Kazakhstan's wish list if it's to lift the suspension of work at the supergiant Kashagan oilfield. Its apparent aim: to take over.

It’s been evident for some time that Kazakhstan had high demands in mind of the Italian-led developers of Kashagan, particularly after the government halted development of the field last week. But it turns out that far larger and earlier payment of oil profit isn’t the only issue on Kazakhstan's list.

Greg White, my former colleague at the Journal, rang up the Kazakhs’ deputy finance minister, Daulet Ergozhin, who said that the country has its complaints about how Eni, the Italian oil major, is operating the field.

Here is the key paragraph from the piece: Kazakhstan isn't insisting that state oil company KazMunaiGaz become the operator of Kashagan, he noted, but said the government would "look positively" on a proposal to put a Kazakh company in control or jointly operate the project. Read story

Steve's comment: The Kazakhs are interested in operatorship out of pride and prestige, not to mention lucrative contracts for the actual work.

There is a noticeable pattern in how such assertiveness takes place. In Russia, Moscow acted after Shell got far over budget on its Sakhalin II project, and a bit presumptuous that the Russians would simply swallow it. The Russians used that wedge to force concessions from Total and BP.

Similarly, the Kazakhs moved after warning signs about Eni's competence -- a series of huge cost overruns, plus at least a seven-year postponement in first oil. Because of this, the demands of the Kashagan consortium do not say anything negative in my view about the Kazakhs -- the foreigners probably deserved it a long time ago. But they do suggest that similar action will take place in the much better-run supergiant Tengiz and Karachaganak fields.

There will be high tension during the designated 60-day talking period over Kashagan, because the foreigners won't voluntarily agree to cede control of development when they are putting in all the money. If they are forced to, one can imagine one or more of the companies heading for the exits.

One wonders separately about the future of President Nazarbayev's second son-in-law, Timur Kulibayev, whom he has dismissed from his executive position with the state investment fund.

Kulibayev, a billionaire who as Nazarbayev's representative in the oil industry dominates the sphere in Kazakhstan, will definitely be re-appointed to an important government post; Nazarbayev needs him.

One wonders whether that new position will be linked with the crucial operatorship of Kashagan.

The Biggest New (Suspended) Oilfield in the World

Kazakhstan eliminated any uncertainty today about where foreign oil companies stand in the country: on the defensive.

After weeks of salvos regarding work on the Kashagan oil field, Kazakhstan forced a three-month halt to development of the supergiant. The field is the largest found anywhere on the planet in three decades. But Ecology Minister Nurlan Iskakov says it has unresolved environmental problems. As Reuters stated: The dispute is reminiscent of Russia's row with Royal Dutch Shell, which ended up with the multinational oil firm losing control of the giant Sakhalin-2 oil project to Russia's Gazprom.

Here is Reuters' quote from Iskakov: “In 2003-2005 we specified a number of offshore sites and we put forward our demands. As of today, these ecological requirements have not been fulfilled. That's why we decided to carry out such an unprecedented step. I think you will hear in the nearest future what will happen next." Read story

Steve's comment: It's been clear that Kazakhstan has tough demands in store for the foreign consortium developing Kashagan. The companies, led by Italy's Eni, look to be about six or seven years behind schedule in producing first oil, plus they are far over budget.

That alone put Kazakhstan in the driver's seat in terms of changing the 1997 contract negotiated on Kazakhstan's behalf by the country's then-oil adviser James Giffen. But other objective factors have now also conspired in Kazakhstan's favor: the world crude oil supply shortage, expected to last at least through 2012; the shortage of fresh oil reserves for the major oil companies to exploit; and Russia's new, tough approach to the oil companies.

The last item on the list -- Russia -- may be the most influential at the moment. Like Russia, Kazakhstan seems to have taken off the gloves.

Before today's escalation of combat, Eni CEO Paolo Scaroni publicly conceded that the contract would have to change. In another soothing move, the company has arranged for Italian Prime Minister Romano Prodi to visit Kazakhstan on Eni's behalf.

But the field suspension shows that Kazakhstan isn't ready to be soothed.

So what does Kazakhstan want? For starters, a lot more money, and much earlier than the companies had planned.

Like most such deals, the Kashagan contract calls for most of the expenses to be paid out of initial oil production before the partners and government begin to take their big profit. But now look for the companies to be forced to cough up larger profit from virtually the first oil to come out of the ground, probably around 2012.

Another reason why the Kazakhs will play especially tough is that whatever ultimately happens will be a model for a probable follow-on challenge to the contracts governing production at the country's other two supergiants -- Tengiz and Karachaganak.

The Russian Solution

Taking the cue from Russia's triumphant taming of Western oil companies, Kazakhstan says the partners in the super-giant Kashagan oilfield have violated environmental laws, and could lose their license. The upshot: Kazakhstan has a big profit demand in mind.

Here is the first paragraph of today's Reuters account: Kazakhstan threatened on Tuesday to revoke an Eni-led consortium's permit to exploit the giant offshore Kashagan oilfield due to environmental law violations. Read story

Steve's comment: The 1997 contract for Kashagan, negotiated by James Giffen, was regarded at the time as extremely tough on the oil companies, with an upside clause for instance that makes the Kazakh take higher as oil prices rise.

The terms are much stiffer toward the companies for instance than those at Kazakhstan's Tengiz field, whose contract includes no upside clause (look for Kazakhstan to demand one from Chevron and Exxon Mobil, and for them to agree).

Kazakhstan's greater assertiveness precedes the activism in Russia, in which Moscow has successfully demanded concessions from Shell, Total and BP. But the Russian strategy of beginning negotiations with accusations of environmental violations (bound to make any Western company nervous) has changed the underlying equation: Western oil companies are no longer in the driver's seat, regardless of their superior technology; if they want to continue to operate in the former Soviet Union -- in Russia, Kazakhstan and probably Azerbaijan -- they now have to agree to better terms for the countries.

ENI's CEO, Paolo Scaroni, whose company operates Kashagan, has put aside the game of charades and effectively conceded that Kazakhstan will get a better money deal.

But today's threat amounts to bringing out the heavy guns. The Caspian Seal is one bit of potent ammunition -- though previous reports blame the deaths of hundreds of the seals on a parasite or some other culprit rather than the Kashagan operation, the Kazakhs now say they want the issue studied again.

That Kazakhstan followed Scaroni's concession with such a threat shows that it probably plans to demand somewhat more than he and his partners expected.

Why Eni is Russia's and Kazakhstan's Best Friend

Over the last several years, ENI has grown from a mom-and-pop Italian would-be into one of the largest oil majors in the world. It is the most successful western oil company in both Russia and Kazakhstan, winning an exclusive perch for example as Gazprom's partner in natural gasfield development in Russia.

An example of why that is the case came over the weekend in a press scrum with ENI CEO Paolo Scaroni. ENI faces terrible trouble in Kazakhstan because it is going to be at least five years -- and probably seven years or more -- late in producing first oil at the Kashagan oilfield. Kashagan is the biggest oil find on the planet in three decades, and could easily produce 2 million barrels of oil a day (the partners currently say their production sights are set lower, but if an independent export channel opens up, look for the higher figure).

Talks are to start soon in which Kazakhstan is probably going to ask for a higher share of the revenue. The boilerplate oil company response to such temerity is shock and horror before agreeing to some of the demands.

Not Scaroni. Here is what he told reporters over the weekend: "The Kazakh government intends to renegotiate the contract and this does not surprise us. We think it's normal because the contract was born when oil prices were much lower." Read story

Thus Scaroni, in acknowledging validity to Kazakhstan's claims, takes the edge off the talks from the outset. Given ENI's record in the former Soviet Union, look for an amicable outcome. Some of the Italian company's partners want to force it to relinquish its role as operator, but as long as it is on friendly terms with Kazakhstan, it is in the driver's seat.

Kazakhs Threaten to Expel Italians as Operator

Guy Chazan of The Wall Street Journal has a
scoop today that Kazakhstan is exasperated with progress in developing its Kashagan oilfield, the largest discovery on the planet in more than three decades. The upshot - Italy's ENI may lose the prestigious operatorship of the field.

The first part of Chazan's story:
ASTANA, Kazakhstan -- Ratcheting up the rhetoric over a cost-overrun dispute at one of the world's largest oil fields, the prime minister of Kazakhstan said his government might remove Italy's Eni SpA as operator of the project. "We are very disappointed with the execution of this project," Karim Masimov said in an interview in the Kazakh capital, Astana. "If the operator can't resolve these problems, then we don't exclude their possible replacement." Mr. Masimov's comments signify intensifying brinkmanship ahead of a face-off this week between the government and the Eni-led consortium developing the strategically important Kashagan field. Oil-industry observers and regional insiders have said Kazakh authorities aren't likely to take the extreme step of firing Eni as operator because of the project's complexities. But they will probably demand a bigger and possibly earlier take from revenue.

Steve's comment: It is probably true that Masimov's remarks amount to brinksmanship. But Kazakhstan is not the only party exasperated with ENI's performance -- its partners in the supergiant field are also fed up with what now looks like a seven-year delay in first oil, until 2012.

To get the partnership, ENI had to fend off rivals Exxon Mobil and Total. So, quite apart from the Kazakhs' sentiments, there is reason to expect some change in the operatorship, starting with greater formal involvement of ENI's partners. Expect Exxon Mobil to lead the charge.

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.