BG, Eni-Led Production Venture Said to Cede Stake to Kazakhs for Cash, Tax
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BG Group Plc (BG/), Eni SpA (ENI) and their partners in Kazakhstan’s second-largest oil producer are close to ceding a 10 percent stake to the state after a build-up of tax claims and fines, said people with knowledge of the talks.
KazMunaiGaz National Corp., the state energy company, will pay cash for part of the stake in the Karachaganak venture, said the people, who asked not to be identified as the talks are private. They declined to estimate the cost of the stake.
The partners will also cede an interest to offset outstanding claims, said one of the people, specifying only that it would be small. Kazakhstan aims to get 5 percent for cash at a market price and the other 5 percent without payment, the other person told reporters in Astana. Karachaganak produced the equivalent of about 360,000 barrels a day in 2010, according to the project’s website.
Karachaganak Petroleum Operating BV, or KPO, is the only major oil project in Kazakhstan without state participation. The BG- and Eni-led venture has been in talks on ceding a minority stake since 2009 after the government began piling up demands for back taxes and fines.
“We are in talks on a range of issues regarding Karachaganak and KPO, the joint venture, as all the partners are,” Neil Burrows, a spokesman at Reading, England-based BG, said today by phone. He declined to give any further comment.
The government has been seeking to boost oil revenue from projects run under so-called production sharing agreements, which give investors the right to recoup part of their spending before the state gets a share of output. In 2008, Eni, Exxon Mobil Corp., Royal Dutch Shell Plc and Total SA agreed to cede a larger share in Kashagan, one of the world’s biggest oil fields, to KazMunaiGaz and pay higher royalties after government criticism of cost overruns and delays.
The Karachaganak partners will probably sign a memorandum of understanding soon and a final accord this fall, one of the people said. Kazakhstan may cancel some claims against the venture, the person said, adding that taxes must be paid.
“We believe that the outcome here is achievable in the course of 2011,” BG Chief Executive Officer Frank Chapman said on May 10.
An Eni spokesman based in Milan didn’t return phone calls seeking comment. Abzal Nurkasymov, an Astana-based spokesman for Kazakhstan’s oil and gas ministry declined to comment.
BG and Eni are the largest shareholders in Karachaganak, each holding 32.5 percent, while Chevron Corp. (CVX) has 20 percent and Moscow-based OAO Lukoil holds 15 percent.
Kazakhstan’s government has claimed at least $2.5 billion from KPO for back taxes, “illegal earnings,” fines and environmental violations, two people with knowledge of the matter said in April last year.
The partners asked the Kazakh government to start approving the costs for future expansion and to reaffirm its commitment to the production sharing agreement, one of the people said. They proposed starting the approval process for a three-year spending plan instead of the whole phase-three expansion of the project, the person said.
Kazakhstan will refuse to approve Karachaganak’s next expansion phase until the BG and Eni-led partners agree to cede a stake to the government, Mynbayev said May 18. Kazakhstan expects the venture to decide on the third-phase expansion at a cost of $14.5 billion, KazMunaiGaz said in February.
The state and the venture partners agreed on a cost-control mechanism, the person said.
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