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    Kazakh Partners to Pay State Compensation


The Karachaganak operating company is to pay the state more, following an arbitration court decision on division of the output.

by: Dalga Khatinoglu, Goynur Shukurova

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Natural Gas & LNG News, Asia/Oceania, Corporate, Litigation, Exploration & Production, Political, Ministries, News By Country, Kazakhstan

Kazakh Partners to Pay State Compensation

The company operating Kazakhstan’s major gas condensate field Karachaganak will pay at least $1.1bn cash to the government in the short term, the country’s energy ministry reported October 1, ending a three-year dispute. It will pay more than half as much again in other  ways.

As the two sides could not agree how to divide up the profit condensate and gas, the government filed a $1.6bn suit in international arbitration in 2015.

According to the statement, they agreed that the operator will pay Kazakhstan up to $1.111bn in cash. More will come from sharing production, leading to additional revenues to the state of up to $415mn in the next 20 years given oil at $80/barrel.

Third, the consortium will lend Kazakhstan money to enable it to build infrastructure worth $1bn; or pay out an equivalent value of the loan worth $200mn. In all, the aggregate monetary value of this settlement is more than $1.7bn for the government, of which $1.3bn will come in the next few years.

Additionally, the consortium agreed to the timely implementation of investments important for the future development of Karachaganak. The parties also agreed on possible supplies of oil and gas on commercial terms for local refineries and for the development of a gas chemical complex in the west of the country.

"These were very difficult negotiations with the consortium, which lasted about three years. Such a long time is indicative not only of their complex content and nature, but also of the fact that we placed the emphasis on economic interests of the state first and, accordingly, insisted on maximising the benefits for the republic in the framework of negotiations,” Kazakhstan’s energy minister Kanat Bozumbayev said. 

Karachaganak accounts for 49% of Kazakhstan's gross gas output, which is sold cheaply to Russian Gazprom for processing in Orenburg in Russia; while Tengiz provided 31% and Kashagan 14%. The country plans to produce 53.5bn m3 gross gas in 2018. The Karachaganak consortium comprises Italian Eni, Anglo-Dutch Shell, US Chevron, Russian Lukoil and state-run KazMunaiGas.