Bloomberg News

Kazakhstan Said to Buy Karachaganak Stake With Eni, BG-Led Loan

December 14, 2011

Dec. 13 (Bloomberg) -- Kazakhstan plans to gain 10 percent of a BG Group Plc and Eni SpA-led venture developing the nation’s second-biggest producing oilfield using a loan from the partners, said two people with knowledge of the matter.

Under a deal to be signed tomorrow, the government will buy 5 percent of the Karachaganak venture with $1 billion borrowed from the international partners, the people said, declining to be identified before the signing. The loan will have a term of three years, the people said.

Kazakhstan will get another 5 percent in exchange for dropping $2.2 billion of court claims, one person said.

Karachaganak is the only major oil project in which the state doesn’t yet hold a stake as the government increases control of Kazakhstan’s resources. The deal will settle a dispute between the partners and the government that has been running for more than two years. Oil contributes 18 percent of gross domestic product in the former Soviet Union’s biggest producer after Russia.

“We believe we are on the right path to reaching a beneficial resolution for all parties,” Mark Todd, a BG Group spokesman, said today by e-mail, reiterating an earlier comment and declining to elaborate.

Eni’s press office declined to comment. Gulnara Sharibayeva, an Astana-based spokeswoman for the Karachaganak Petroleum Operating BV venture, declined to comment.

The deal is in the final stage of approval after the Kazakh government agreed on it, one person said. The partners will have to drop demands for about $1.4 billion in tax rebates, the person said.

State Control

Tomorrow’s agreement will increase government control over Karachaganak’s budget, the person said. The project’s expansion will be approved in stages with state approval required for costs higher than $500 million, the person said, without giving a total estimate. The third phase may cost $14.5 billion, KazMunaiGaz National Co., the state oil and gas producer, said in February.

The government has said it will only approve a budget to expand the project after gaining a stake.

Kazakh tax authorities withdrew back tax claims after an agreement on the stake was reached this month, Deputy Oil Minister Lyazzat Kiinov said Dec. 7. The foreign partners, led by BG and Eni, may be paid as much as $1.1 billion, Timur Kulibayev, head of the Samruk-Kazyna state wealth fund, said in October. KazMunaiGaz is controlled by Samruk-Kazyna.

BG and Eni each hold 32.5 percent of the venture, Chevron Corp. holds 20 percent and OAO Lukoil, Russia’s second-biggest oil producer, has 15 percent. Karachaganak produced about 366,000 barrels of oil equivalent a day last year, the project website shows.

--With assistance from Stephen Bierman in Moscow, Alessandra Migliaccio in Rome and Brian Swint in London. Editors: Torrey Clark, Amanda Jordan

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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