Karachaganak Group Pays $1.3bn to Settle Kazakh Dispute

Shell, Italy's Eni and the other developers of Kazakhstan's giant Karachaganak gas and condensate field have paid $1.3bn to the Kazakh government to settle a protracted dispute over profit-sharing at the project, the Kazakh energy ministry reported on December 14.

The Karachaganak Petroleum Operating (KPO) group, which counts Chevron, Russia's Lukoil and Kazakh state oil producer KazMunayGas (KMG) as its other members, has also agreed to amend the terms of their production-sharing agreement (PSA) for Karachaganak, which was first signed in 1997. These adjustments will earn the government an extra $600mn by 2037, assuming an oil price of $40-50/barrel.

Karachaganak is a Soviet-era discovery that was redeveloped as one of Kazakhstan's largest oil and gas projects. The field flowed some 412,000 barrels of oil equivalent/day of oil and gas in the first half of the year, making it the country's third biggest producer after Tengiz and Kashagan. Its liquids are mostly delivered westwards to markets via the Caspian Pipeline Consortium, while gas that is not re-injected or used on site is delivered to neighbouring Russia for processing.

Kazakhstan first lodged its claim against KPO in 2015, complaining that it was not getting its fair share of profits from production. A settlement looked near in 2018, but a deal was not finalised until now.

Kazakhstan's energy ministry said the settlement payment would pave the way for work on a $1bn expansion project, involving the construction of a new injection compressor and other facilities. This will maintain liquids output at 11-11mn metric tons/year, it said.

"Today the partners put an end to the long-term dispute by signing the termination agreement," the Kazakh government said. "As a result of long and difficult negotiations, the parties managed to resolve the dispute amicably, which showed the republic's willingness to resolve disputes with investors in a mutually acceptable manner in accordance with the provisions of the contract."