Kashagan project participants are close to making a deal with Kazakhstan's government

Kashagan project participants are close to a settlement with the authorities of Kazakhstan / Photo: Reuters

Transnational oil companies operating at the Kashagan oil field are close to settling with the government of Kazakhstan which wanted them to pay $5 billion in fines for violation of environmental legislation, Bloomberg reported.

According to people familiar with the matter, foreign partners of the project such as Eni S.p.A, Shell plc, Exxon Mobil Corp. and TotalEnergies SE have prepared a draft settlement of the argument. They want the government to drop its idea of applying ecological sanctions against them in return for additional investments in social projects. The companies are allegedly ready to allocate $110 million for this purpose within the next two years.

Last year, Kazakhstani authorities accused North Caspian Operating Company (NCOC), which runs the Kashagan project, of storing excessive amounts of sulfur at the site, even though the company denied any wrongdoing and even proved its claim in court. However, the government is continuing to pursue its initial goal anyway with the help of a court of appeal.

According to sources familiar with the case, the current version of the settlement also includes oil companies’ obligations to cut sulfur reserves at the oil field.

With a budget of $55 billion for developing the off-shore oil field, NCOC is already part of an arbitrary trial of over $13 billion worth of expenditures. The Kashagan project participants deny any wrongdoing in this case as well.

«NCOC is dealing with sulfur very carefully with no violation of Kazakhstani law,» the company said, although it refused to comment on legal details.

The Ministry of Energy of Kazakhstan readdressed Kursiv’s request to the Ministry of Ecology and Natural Resources, which hasn’t responded to a request to comment on the situation. Shell and TotalEnergies have also refused to comment, while Italian Eni said that it needs more time to provide its comment.

President Kassym-Jomart Tokayev of Kazakhstan is going to visit Italy on January 18-19, according to his press service. The president is expected to meet Prime Minister Giorgia Meloni and executives of several «large Italian companies,» the press service said on Telegram. Also, Tokayev is going to chair the round table devoted to investments in Kazakhstan during his official visit to Italy.

In October 2023, Minister of Ecology and Natural Resources Yerlan Nysanbayev said that the agency was going to settle out of court with the Kashagan consortium (NCOC) participants on the issue with $5.1 billion in fines. In turn, Jomart Aliyev, head of the Committee on Ecological Regulation and Control under the ministry, said that NCOC hadn’t informed the ministry about any filing to the international arbitrary.

On October 1, Bloomberg reported that NCOC participants were weighing the idea of appealing to an international arbitrator to avoid the $5.1 billion fine that the government of Kazakhstan wanted them to pay. Investors said that they would resort to this option if negotiations with the country’s government fail. However, no one from NCOC, Exxon, Shell, TotalEnergies, Eni or the Ministry of Energy has responded to the news agency’s request for comments.

When the government of Kazakhstan imposed a $5.1 billion fine on the NCOC for an excessive amount of sulfur at the site, some experts described it as an attempt to increase the country’s share in the project. On September 7, 2023, Prime Minister Alikhan Smailov said that Kashagan could boost its oil output by 5.9 times from 12.7 million tons in 2022 to 75 million tons. Among the NCOC consortium participants are: KMG Kashagan B.V. (16.877%), Shell Kazakhstan Development B.V. (16.807%), Total EP Kazakhstan (16.807%), AgipCaspian Sea B.V. (16.807%), ExxonMobil Kazakhstan Inc. (16.807%), CNPC Kazakhstan B.V. (8.333%) and Inpex NorthCaspian Sea Ltd. (7.563%).