(EnergyAsia, December 15 2011, Thursday) — KazMunaiGas, the state-owned oil and gas company of Kazakhstan, has agreed to pay US$3 billion for a 10% stake in the country’s Karachaganak gas and condensate project in a landmark agreement to settle years of disputes with foreign investors.
According to the consortium developing the project, KazMunaiGas (KMG) will acquire the stake proportionately from each member including joint operators UK’s BG Group (32.5%) and Italy’s ENI (32.5%), US major Chevron International Petroleum Company (20%) and Russia’s Lukoil (15%) by June 30 2012. With KMG’s participation, BG Group and ENI will each own 29.25% of the shares, while Chevron will hold 18% and Lukoil will have 13.5%.
Backed by one of the world’s largest oil and gas reserves, Kazakhstan is Central Asia’s largest economy and a key player in the geo-political landscape involving Russia, Europe and China. Commensurate with its rise, Kazakhstan has been seeking to revise the original 1997 agreement signed with the Karachaganak consortium during the early post-Soviet era.
For the government of President Nursultan Nazarbayev, the agreement will strengthen his already tight control of the country which celebrates its 20th anniversary of independence from the Soviet Union on December 16.
BG Group said the contractors will receive a total pre-tax US$3 billion payment for transferring 10% of their rights and interest in the production sharing agreement to develop the giant gas-condensate field in north-western Kazakhstan to KMG.
The payment and transfer will be made in two parts, starting with US$1.5 billion in cash in exchange for a 5% stake in the project. Later, KMG will make a payment comprising US$500 million cash and US$1 billion non-cash consideration in exchange for the remaining 5% interest.
According to BG Group, the non-cash consideration includes final and irrevocable settlement of cost recovery and other related claims and the allocation of an additional two million tonnes/year capacity for the Karachaganak project in the Caspian Pipeline Consortium export pipeline.
The contracting companies will be responsible for paying tax of US$1 billion on the total consideration.
They will also make a US$1 billion loan to KMG to be repaid in instalments over a three-year period. The loan will be repaid from the proceeds of KMG’s share of oil and gas sales from its 10% interest, backed by a guarantee from Samruk-Kazyna, the country’s sovereign wealth fund.
The parties will retain the terms and conditions of the production sharing agreement signed in 1997 for Karachaganak’s development.
Ashley Almanza, BG Group’s executive vice president, said:
“Karachaganak is estimated to have hydrocarbons initially in place of nine billion barrels of condensate and 48 trillion cubic feet of gas – to date less than 10% of that resource has been produced. (This) agreement ensures strong alignment with the Republic of Kazakhstan and provides the foundation for realising the vast remaining potential and value in Karachaganak.”
Chevron vice chairman George Kirkland said: “Chevron has a long and productive history in Kazakhstan. We look forward to KazMunaiGas joining the Karachaganak partnership and working together toward further development of this field.”