One dive chronicle

Kashagan crisis processes stimulator was Italian ENI Company acting as project operator statement that it is going to change once again industrial development dates to the end of 2010.

Visibly grown project budget was an evidence of abrupt profitability decrease which was not wished to be talked loudly neither by the consortium itself nor by Kazakhstani government.

West reaction on Kazakhstani Prime Minister Karim Massimov statement on necessity to make "KazMunaiGas" co-operator on Kashagan could be forecasted. Claim in so-called "resource nationalism", fears that contracts could be reconsidered had sporadic character. Most likely, the west understands well enough how unprofitable are the conditions of the agreement on production distribution between Kazakhstan and the consortium.

Answering on claims in "resource nationalism", Kazakhstani prime minister underlined that Kazakhstani government has immunity from this illness. He tried to post right away "red flags" of the problem confessing that from the country point of view "the situation with Kashagan project is evaluated as special case. Legal interests of potential and real investors in Kazakhstan will not suffer".

Project brief history

By this summer Italians proposed to delay industrial development for second half of 2010. This is not the first delay of the full-scale oil extraction start on Kashagan oil field. According to the agreement on production division, Agip KSO international consortium executing works on Kashagan should have started industrial extraction in 2005.

By this term conditions of previously signed contract were not fulfilled, parties have started negotiations on the delay on oil field development start.

In February 2004 the consortium reached agreements with Kazakhstani government on Kashagan industrial development start delay from 2005 to 2007-2008.

At this, according to signed by parties documents, Agip KSO engaged itself to pay Kazakhstan in general USD 150 million as a compensation for industrial development start delay.

For Northern Caspian project realization shortly after the signing in 1997 with a period of 40 years corresponding with the agreement on production division the consortium OKIOC was established (Agip KSO previous name). According to the agreement on production division, except Kashagan the dwelling works contract territory of the consortium includes 3 more oil structures: Kalamkas, Aktoty, Kairan. These 4 structures consist of 11 sea blocks located on a territory of 5600 square meters.

Ecological bludgeon

It gives an impression that Italians not right away believed the determination of Kazakhstani prime minister to deprive Eni the oil field Kashagan operator status. The main reason for dissatisfaction of Kazakhstani side is a fact of project expenses growth from USD 57 billion to 136 billion proposed by the operator.

This means that project profitability goes down twice or more. At Kazakhstan oil profit of 10% these are felt loses.

Of course, other consortium members will face more felt loses, but fact is a fact - at the end loses of oil field owner country will be much higher.

This, in the first place, is connected to the agreement on production division according to which Kazakhstan will get first income only once the consortium members will cover their expenses.

Kazakhstan publicly expressed its desire to increase its share of profit oil from 10% up to 40%. On August 21 mass media published RK Environment Protection Minister Nurlan Iskakov position who threatened the consortium with stoppage of its work in the case if Kazakhstan environment legislation will be violated. The general prosecutor office was connected to the attacks process against the consortium.

Environment protection body audit check results were sent to the Ministry of Energy and Mineral Resources to take a decision to stop works.

The process was actively joined by Kazakhstani Prime Minister Karim Massimov who commissioned to the Minister of Energy and Mineral Resources Izmukhambetov "investigates and takes steps according to the Kazakhstani legislation".

We could only envy to the efficiency of Energy Ministry workers who right away declared that found out systematic violations of environment protection law by Agip KSO.

At this it was linked to planned complex check of Agip KSO NordCaspian Operating on which results the systematic violations of Kazakhstan environmental protection law while executing oil operations on contract territory was discovered.

Nobody wants to give in

Afterwards Bloomberg agency reported with reference to Italian newspaper MF that Italians proposed to increase Kazakhstan share in profitable production of Kashagan up to 25% many analysts decided that the time for auction has come.

In the case if Eni SpA chair Paolo Scaroni during planned on the beginning of September meeting with Karim Massimov did such a proposal, following factors would appear: first of all, it would be hard to imagine other consortium members' reaction on such unilateral operator's actions. Pre se, this is a contract change signed in 1997. At this concourse of circumstances Italians would drawn a bead of other project partners.

Second of all, getting 25% share in the project, "KazMunaiGas" will get enough influence in the project to pretend equally with Italians for Kashagan co-operating. From the other side, 25% share in income means control from the side of Kazakhstan oil monopoly the other consortium members.

Of course, Eni SpA could not allow such a risk. Soon after Bloomberg report, Italians disproved publication in Italian newspaper MF.

Eni chair Paolo Scaroni will not propose to increase Kazakhstan share up to 25% from current 10%, stated to the journalists company press secretary Jianni di Jiovanni.

Calculate change at the cashier's office!

Official Astana reaction which made public its claims for 40% of Kashagan income did not make waiting so long. On August 27 Kazakhstan Ministry of Environment Protection stopped Kashagan works on a period of 3 months because of ecological violations. "We have stopped activities on our part for a period of 3 months", - reported Kazakhstan Ministry of Environment Protection chair Nurlan Iskakov. He mentioned that Kazakhstani environment protection body pointing its demands does not fulfill any other aims except removal of ecological violations of the company. "Not all ecological requirements are done by now, therefore we have to take this unexampled measure", - he said.

By the same day with its claims to the consortium Kazakhstani firemen have stepped ahead. In particular, Kazakhstan Ministry of Extreme Situations Fire Prevention Committee stopped the exploitation of oil and gas complex processing equipment. At this, according to the adopted in the republic procedures, fire-prevention service should send during 3 days its decision to the judicial body starting from the moment of resolution pronouncement on the work stoppage at any of the objects. At this before the judicial body will take any decision works on the object could not be executed.

Claims' list appeared to be impressive enough. At this the statement points out that Kazakhstan Ministry of Extreme Situations Fire Prevention Committee have called to administrative account for fire prevention security violation starting from 2005 until now 18 persons of Agip Kazakhstan North Caspian Operating and its contract organizations.

The statement underlines that from the moment of construction start at the object was registered 3 fires the main reasons of which were fire prevention security violation while electric equipment were used and cable was installed.

RK Customs control Committee stepped ahead before the firemen and brought before a court cases concerning a number of responsible workers of the international consortium Agip KSO on facts of customs duties payments violations.

To be continued…

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