Kazakh parliament postpones oil law amendment ruling

Jun 30, 2004 02:00 AM

The parliament of Kazakhstan postponed a decision on whether to pass amendments to the nation's subsoil law that would allow the government to buy BG Group's (BRG) one-sixth stake in the giant Kashagan oil field.
The latest session of parliament adjourned, without a decision on the amendments, which would give the government the right to pre-empt the sale of equity in existing oil and gas contracts. Parliament will reconvene in September after the summer recess, a parliament spokeswoman said.

One member of parliament, Victor Vesnik, told that the amendments would likely be postponed because "it is necessary to study foreign investors' reaction." He added that the delay was prompted by letters sent from Kazakhstan's Petroleum Association and Foreign Investors Council, which include major oil companies such as BG Group, BP, ConocoPhillips, Total and ExxonMobil.
These letters signal a ratcheting up of tension over the government's claim earlier this month that it has the right and intentionto buy into the Kashagan project, a move which alarmed some of the partners in the development.

The partners in the Kashagan project -- the world's biggest oil find in the past 30 years -- are meeting in London with the nation's energy ministry to discuss the government's move. Members of the consortium include Italy's ENI, which is the operator, Total, Shell, Japan's Inpex, ExxonMobil, and ConocoPhillips.
Until the Kazakh government's interest in grabbing equity in Kashagan surfaced earlier this month, BG had been in discussions with most of the consortium members to finalize the disbursement of the stake in exchange for an agreed price of £ 1.23 bn. BG originally agreed to sell its 16.67 % stake to Chinese oil producers Sinopec and China National Offshore Oil Corp., or CNOOC, in March 2003, but all the other partners in the project -- except for Inpex -- exercised a contractual right to pre-empt the sale.

The investors urged the legislature to cancel the amendment that would give the government the right to pre-empt such sales, arguing that such a position will damage the investment climate in the country and investors' trust in the government.
Total investment in Kashagan is estimated to ultimately reach $ 30 bn, with production expected to start in early 2008. Output is estimated to peak at 1.2 mm bpd by 2018.

Source: Dow Jones
Market Research

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