Kazakhs Said to Seek Greater Share of Karachaganak Field Revenue

  • Government said to plan contract changes at oil, gas project
  • Shell-led venture faces additional compensation claim

Kazakhstan’s government is seeking a greater share of profit from Karachaganak, the venture led by Royal Dutch Shell Plc and Eni SpA that is the nation’s second-biggest producing oil and gas field, according to two people familiar with the proposal.

The government is in talks with the Karachaganak joint venture partners to change the formula in the production sharing agreement that determines the distribution of profit starting from this year, the people said, asking not to be identified because the talks are private.

Last year, Kazakh authorities were seeking to impose a penalty of as much as $2 billion on Karachaganak. While the state is still considering levying compensation for revenue it would have received had the revised terms been in place since 2010, the final amount is likely to be in the hundreds of millions of dollars, one of the people said.

Kazakhstan, which depends on energy products for about three quarters of its exports, needs extra revenue to balance its budget after the collapse in energy prices. While the price of Brent crude, the international benchmark, has risen more than 75 percent from a 12-year low in January, the state is still planning to raise extra funds through the biggest wave of privatization in its history.

Kazakhstan’s Energy Ministry didn’t immediately respond to requests for comment.

Shell, which took over 29.25 percent of Karachaganak when it acquired BG Group Plc this year, and Eni, which has an equal stake, declined to comment. A spokesman for Chevron Corp., which holds 18 percent of the field, said he would look into the matter. State-run KazMunaiGaz National Co., which has a 10 percent holding, declined to comment, as did Karachaganak Petroleum Operating BV, the joint-venture company.

Russia’s Lukoil PJSC, another partner in Karachaganak, said last month that Kazakhstan has made about $1.6 billion of claims against the venture relating to a dispute over “cost recovery” and calculation of the “fairness index” at the field. The company declined to comment Tuesday.

The partners in Karachaganak need to decide next year whether to invest $6 billion to maintain output of a light oil called condensate at a plateau of as much as 12 million tons a year, according to the Energy Ministry. The field also produces natural gas.

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