Bloomberg News

Kazakhstan May Pay Up to $1.1 Billion for Karachaganak Stake

October 05, 2011

(Updates with Kulibayev quote in second paragraph.)

Oct. 5 (Bloomberg) -- Kazakhstan may pay $700 million to $1.1 billion for 10 percent of the Karachaganak oil venture led by BG Group Plc and Eni SpA, said Timur Kulibayev, the head of the state wealth fund, Samruk-Kazyna.

The foreign partners, which include Chevron Corp. and Russia’s OAO Lukoil, must settle issues with the Oil and Gas Ministry before an agreement is reached, Kulibayev told reporters today in Astana, the Central Asia nation’s capital.

Kazakhstan is seeking to enter Karachaganak, the only major oil development in which the state doesn’t hold a stake, as it boosts control of its oil resources. The government has threatened tax claims and fines for environmental violations and cost inflation, while saying it will approve the budget for Karachaganak’s expansion only after joining the project.

“This will be a package deal,” Oil and Gas Minister Sauat Mynbayev said today. Yesterday, Mynbayev said the government won’t drop tax claims against the venture during their negotiations.

The Karachaganak partners expect to reach an agreement on expanding the project with the Kazakh government this year, Chris Finlayson, BG’s executive vice president and managing director for Europe & Central Asia, said yesterday. He declined to comment on the stake or tax claims.

Tax Claims, Rebates

The Karachaganak Petroleum Operating BV venture has been in talks on ceding a minority stake since 2009 after the government began piling up about $2.5 billion of claims for back taxes, “illegal earnings,” fines and environmental violations, two people with knowledge of the matter said in April last year. The partners had demanded about $1.4 billion in tax rebates.

Kazakhstan expects the venture to decide on the so-called third-phase expansion at a cost of $14.5 billion, KazMunaiGaz National Co., the state energy producer, said in February. KazMunaiGaz, which is controlled by Samruk-Kazyna, is the company that would get the stake in Karachaganak.

BG and Eni are the largest shareholders in Karachaganak, each holding 32.5 percent, while Chevron has 20 percent and Lukoil holds 15 percent. Karachaganak produced the equivalent of about 360,000 barrels of oil equivalent a day in 2010, according to the project’s website.

--Editors: Torrey Clark, Tony Barrett

To contact the reporter on this story: Nariman Gizitdinov in Almaty at ngizitdinov@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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