Oil Majors Close to Settling $5 Billion Kashagan Field Dispute

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(Bloomberg) — The oil majors behind the giant Kashagan field are close to a deal with the Kazakh authorities that will settle a dispute over a potential $5 billion environmental fine, according to people familiar with the matter.

International partners including Eni SpA, Shell Plc, Exxon Mobil Corp. and TotalEnergies SE have prepared a draft settlement that would stop the government pursuing the environmental penalty and include a pledge from the companies for additional investment in social projects, the people said, asking not to be named because the talks are private. This spending will amount to $110 million over the next two years, one of the people said.

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The much smaller settlement, compared with the multibillion dollar fine initially sought, follows a legal victory for the international companies last year. The Kazakh authorities had accused the North Caspian Operating Company, which runs Kashagan, of storing too much sulfur at the project. The operator denied any wrongdoing and mounted a successful challenge, but the government was still pursuing the penalty at the country’s court of appeals.

The current version of agreement also includes a commitment by oil companies to reduce sulfur storage at the field, the people said.

The Kashagan venture, which developed the $55 billion offshore oil field, is already involved in a separate arbitration over $13 billion in disputed costs. The Kashagan partners have denied being at fault in this case as well. 

“NCOC conducts its sulfur management operations responsibly and in compliance with the laws of the Republic of Kazakhstan,” the company said by email, while declining to comment on the dispute resolution process.

Kazakhstan’s Energy Ministry referred questions to the Environment Protection Ministry, which didn’t respond to a request for comment. Shell and TotalEnergies declined to comment. Eni wasn’t immediately able to comment.

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Kazakhstan’s President Kassym-Jomart Tokayev will visit Italy on Jan. 18 and 19 to meet premier Giorgia Meloni and the “management of several large Italian companies,” his press office said in statement on its Telegram account. Tokayev will also chair investment round table during the visit.

The giant field in the Caspian Sea has been plagued by delays and cost overruns. In 2013, sulfurous gas corroded and cracked pipelines from the offshore field to onshore processing facility, forcing it to be halted just weeks after it first started. In 2022, the Kashagan venture was forced to curtail output for an extended period beyond scheduled maintenance to repair a preliminary gas separation unit — known as a slug catcher — at the onshore facility.

Kazakhstan is seeking to attract new investments as the latest large expansion of its oil production capacity at the Tengiz field is scheduled for completion this year. Central Asia’s largest energy producer has become a crucial supplier to Europe after the bloc banned most imports of Russian oil following the invasion of Ukraine.

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The Kashagan joint venture partners, which also include Chinese National Petroleum Corp. and Japan’s Inpex Corp., started settlement talks in November, after a warning that they could seek international arbitration if negotiations didn’t happen. Their approach to the government came after a legal ruling in June that nullified the results of the sulfur-storage inspection at Kashagan conducted by the regional environmental protection department.

CNPC and Inpex didn’t immediately respond to requests for comment.

—With assistance from Laura Hurst, Kathy Chen, Shoko Oda, Alberto Brambilla and Francois de Beaupuy.

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