Kazakhstan and KPO Have Managed to Negotiate a Years-Long Dispute over Revenues

The government of Kazakhstan and shareholders of Karachaganak Petroleum Operating (KPO) signed an agreement that settled the dispute, the Ministry of Energy’s press service reported. 

Under the terms of the agreement, shareholders of the Karachaganak project have paid Kazakhstan $1.305 billion as compensation. 

Both sides agreed on the final terms of production sharing. Therefore, until 2037 Kazakhstan can get up to $600 million if the oil price will meet $40-50 per barrel.

Also, the Kazakhstani government and KPO agreed to start the new Karachaganak Expansion Project’s (KEP) first development stage to support the oil production plateau at the Karachaganak oil field.
According to the Ministry of Energy, the future expanding project would require $1 billion of new investments. This money is needed for the purchase of new equipment for gas re-injection. In this case, the output of the current oil field will amount to 10-11 million tons of oil.

«Karachaganak Expansion Project (KEP) will require at least 45% of Kazakhstani origin goods and services and 75% of local personnel. Then both sides may go further in the implementation of the following stage of the project,» the press release said. 

In 2015 Kazakhstan expressed its dissent with the method of revenue sharing that comes from Karachaganak oil sales. The two sides argued over fairness measures that determine the size of revenue of the consortium and government. After that, the country and Karachaganak Petroleum Operating consortium had been negotiating and disputing in arbitration court. 

In October 2018, the Ministry of Energy announced the end of the negotiating process. However, the final agreement on dispute settlement was not signed. In 2018 KPO was going to pay Kazakhstan with $1.1 billion as compensation for lost profits, but the country insisted on increasing that figure. The government did not withdraw a lawsuit against the consortium from an international arbitration court. 

Karachaganak (KPO) is working under the Karachaganak Final Production Sharing Agreement (FPSA) that was signed in Washington, D.C. in 1997 between the Kazakhstani government and a consortium of several Western companies. Currently, this includes Shell (29.25%), Eni (29.25%), Chevron (18%), Lukoil (13.5%) and KazMunayGaz (10%).