Jan. 14 (Bloomberg) -- Eni SpA and partners in the Kashagan oil field agreed to cede a greater stake in the world's biggest crude discovery in 30 years to Kazakhstan, giving the government more profit and resolving a dispute over delays and costs.

State-run KazMunaiGaz National Co. will pay $1.78 billion to double its Kashagan stake to 16.8 percent, on par with the top shareholders, Energy Minister Sauat Mynbayev said today at a press conference in the capital, Astana. The Eni-led group will pay the government $5 billion to compensate for lost revenue and share profits with the state earlier than planned, he said.

Kazakhstan demanded renegotiation of the Kashagan agreement after delays, technical complications and cost overruns hampered the project. The government is following in the footsteps of Russia, which a little more than a year ago took control of Royal Dutch Shell Plc's Sakhalin-2 project in the Pacific Ocean.

``Although none of the foreign oil companies will be happy to give up equity, it's a small price to pay to resolve the impasse,'' said Chris Weafer, chief strategist at Moscow-based UralSib Financial Corp. ``It's better to have reduced equity in a project that has full state support rather than a bigger position in a project that faced an increasing number of problems.''

Eni will lose its role as sole operator of the field after production starts at the end of 2011, Mynbayev said. KazMunaiGaz, Exxon Mobil Corp., Total SA and Shell will join Eni in a new operating company, with Kazakhstan holding a ``controlling function'' in the field's future development, he said in an interview after the press conference.

Sharing the Work

``The new company will coordinate and approve work,'' Mynbayev said. ``The actual development work will be split up among the partners, for example with one doing the drilling and another building coastal infrastructure.''

The agreement includes a ``value transfer package from the consortium to the Kazakhstan authorities'' and ``provides for an increased role of KazMunaiGaz in operations and for a new operating and governance model,'' Eni said today in an e-mailed statement.

Kazakhstan will take as much as 5 percent of profit even before the foreign partners recoup their costs, Mynbayev said. Under the original contract, the state would have received nothing until the companies had recovered their initial investment. Mynbayev said Kazakhstan will keep its 10 percent share of so-called ``profit oil,'' the crude that will be sold once the project's costs have been paid.

Tax breaks for the foreign investors, known as uplift, will also be trimmed, Mynbayev said.

Partner Stakes

Eni, Exxon, Total and Shell each held 18.5 percent of the development before the agreement, while ConocoPhillips had 9.3 percent. KazMunaiGaz and Japan's Inpex Corp. each held 8.3 percent. Kazakhstan will pay to double its stake only after production starts, Mynbayev said.

Eni and its partners will make the $5 billion payment to the government over the life of the Kashagan contract, which won't be extended beyond 2041, Mynbayev said. The amount is based on oil at $65 a barrel and may fluctuate with crude prices, he said.

The companies, which will transfer some of their Kashagan stakes to KazMunaiGaz, and the government are set to complete the changes to the development contract resolving the dispute by the end of May, Mynbayev said.

``We didn't let the contract be annulled, which would have happened if we hadn't reached an agreement,'' Kazakh President Nursultan Nazarbayev said in a statement on his Web site.

Meeting With President

Nazarbayev met representatives of Eni's partners, including Shell Chief Executive Officer Jeroen van der Veer, at his Astana residence today, according to the Web site.

Eni Chief Executive Officer Paolo Scaroni flew to Milan right after the completion of talks last night. Exxon's local spokeswoman, Patricia Graham, declined to comment on whether CEO Rex Tillerson attended the meeting with Nazarbayev. Tillerson was the first person to leave yesterday's talks, held at an Astana restaurant.

Exxon Mobil hadn't been opposed to a stake increase for KazMunaiGaz and was satisfied with the agreement, company spokesman Gantt Walton said. He declined to comment on the role that Irving, Texas-based Exxon Mobil will play in the new operating group. The company last year sent a team of engineers to assist Eni as delays and cost increases mounted.

``Kashagan is an extremely complex project and Exxon Mobil and the other consortium members have reached an agreement on a strengthened operating model,'' Walton said.

Times Change

Kazakhstan and Russia, struggling with the economic aftermath of the collapse of communism, wooed investment and technology by signing production-sharing agreements with foreign companies in the 1990s. As costs began to soar on higher metals prices and crude oil set fresh records, deals signed in leaner times came under review.

``This is likely to be only phase one of the ownership question,'' said Weafer of UralSib Financial. ``As Kazakhstan appears to be following the path set by its neighbor and mentor Russia, we should expect to see them eventually build their position at least to a blocking stake and perhaps higher.''

A blocking stake would be about 25 percent, he said.

Mynbayev denied that the government was now planning to review contracts held by other foreign-led groups, such as Chevron Corp.'s Tengizchevroil project and BG Group Plc's Karachaganak development.

``We don't have such plans,'' Mynbayev said. ``They are different from Kashagan: There was no way we could accept an unjustified cost increase and delays.''

Nine-Hour Meeting

Kazakh Prime Minister Karim Masimov joined Scaroni, Tillerson and other representatives of the project for yesterday's talks, which lasted more than nine hours.

``Everyone put as much pressure as they could on everyone else to get a good deal,'' said Rinat Gainoulline, an equity strategist at Moscow's Alfa Bank. Kazakhstan could earn an additional $7 billion in revenue between 2010 and 2015 by doubling its stake in Kashagan, Gainoulline said.

The giant development in the Caspian Sea is crucial for Kazakhstan to achieve its goal of doubling crude output by 2015. Eni expects output from the field to reach 1.5 million barrels a day. The government cut its crude production forecast to 2.6 million barrels a day in 2015 from a previously estimated 3.2 million barrels a day because of the Kashagan delays.

Kazakhstan demanded a greater share of profit from Kashagan as compensation for delays, which may prolong by as much as 11 years the time it will take for the country to see returns from the field. Costs have more than doubled the price for developing and running the project to $136 billion, according to the state.

Project Delays

The delays will cut Kazakhstan's returns from the project by more than $10 billion over the 40-year life of the field, Deputy Finance Minister Daulet Ergozhin said Oct. 20.

Kazakhstan had pressured the companies by amending its subsoil law to allow it to cancel oil projects such as Kashagan if developers ``significantly'' violated production contracts.

Eni and its partners paid a $150 million fine in 2004 after delaying the start of oil production at the field to 2008 from 2005. Talks to alter Kashagan's 1997 contract took place after engineering costs and safety considerations forced the group to delay output a second time to the third quarter of 2010.

To contact the reporters on this story: Nariman Gizitdinov in Astana through the Moscow newsroom at ngizitdinov@bloomberg.net; Lucian Kim in Astana through the Moscow newsroom at lkim3@bloomberg.net.

Last Updated: January 14, 2008 15:59 EST