Kazakhstan wants Kashagan project operator to pay $150 billion in compensation for lost revenue

According to Bloomberg, Kazakhstan demands international oil companies operating at the Kashagan oil field to pay $150 billion in compensation for lost revenue. 

In April 2023, Bloomberg reported that Kazakhstan filed a lawsuit against North Caspian Operating Company N.V. (NCOC), the consortium of oil firms operating at Kashagan, demanding a compensation of $13 billion (later increased to $15 billion). The country’s authorities accused the consortium participants of bidding procedure violation and failing to fully implement their obligations in terms of construction. Since then, Kazakhstan’s claims have increased to $150 billion. 

An additional claim is related to $138 billion of lost revenue «reflecting the calculation of the value of oil production that was promised to the government but not delivered by the field developers,» Bloomberg reported, citing sources familiar with the matter.

Even though NCOC confirmed that some arguments over product sharing at the oil field must be reviewed by a court of arbitration, it refused to comment on the case, citing its confidentiality.

Italian Eni also confirmed to Bloomberg that Kazakhstani authorities have launched an arbitration procedure but declined to reveal any details of the process. Eni said that it doesn’t think that the accusations or certain amounts of claimed compensation are reasonable or trustworthy. TotalEnergies hasn’t immediately responded to a request to comment on the case. Both Shell and the Ministry of Energy of Kazakhstan have refused to comment.

According to Bloomberg, it wasn’t the first time that Kazakhstan demanded compensation from international oil companies involved in the Kashagan and Karachaganak projects. For instance, in 2020, Shell, Eni and their partners in the Karachaganak oil and gas project paid $1.3 billion to settle a long-standing dispute with the government over revenue distribution. In 2008, the Kashagan partners paid Kazakhstan $5 billion and agreed to sell a large stake in the venture to state-owned KazMunayGas to settle a dispute over delays and cost overrun.

The dispute in Central Asia’s largest oil-producing nation underscores the difficulty of developing big energy projects with complex production challenges and the government maximizing its benefits from production-sharing agreements, the news agency reported.

In 2023, Kazakhstan said that it may think about settling its disputes with the Kashagan project participants through direct negotiations.

Environmental claims. In early 2023, the Department of Ecology of the Atyrau region identified violations against environmental law at Kashagan, including the storage of excessive amounts of sulfur. As a result, the government of Kazakhstan obliged the NCOC consortium to pay $5.1 billion in fines.

In turn, NCOC appealed to the Astana court which partially satisfied the company’s demands. However, the Ministry of Ecology didn’t stop there and filed a cassation appeal. The Appellate Division of the Astana Court ultimately confirmed that the ministry was right and ordered NCOC to pay a fine.

Among shareholders of the NCOC consortium are KMG Kashagan B.V. (16.877%), Shell Kazakhstan Development B.V. (16.807%), Total EP Kazakhstan (16.807%), Agip Caspian Sea B.V. (16.807%), ExxonMobil Kazakhstan Inc. (16.807%), CNPC Kazakhstan B.V. (8.333%) and INPEX North Caspian Sea Ltd. (7.563%).