Kazakhstan to review Kashagan PSA

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Kazakhstan will review its deal with Western oil firms developing the Kashagan field to reflect agreements reached last month to end a row over the project's future.

Kazakh Energy Minister Sauat Mynbayev told the Vremya newspaper the government would incorporate the changes into the Kashagan Production Sharing Agreement (PSA) by October15.

“Yes, that is what we are planning to do. The agreement which we have reached, and which is reflected in the memorandum of understanding signed by both sides, will have to be incorporated into the PSA by October15,” he told the paper.

In June, Kazakhstan and the group agreed to hold off the start of production until 2013 after a year of tension over the world's biggest oil discovery in 30 years.

In return, the consortium agreed to prevent further cost overruns, pay floating royalties linked to the oil price and have the PSA expire in 2041.

The consortium unites Eni, Royal Dutch Shell Plc, Exxon Mobil Corp, Total, ConocoPhillips, Kazakh state oil company KazMunaiGas and Japan's Inpex Holdings Inc.

The move to fix Kashagan's PSA comes in the light of a broader strategy by the Kazakhstan government to abandon subsoil contracts favored by oil companies due to their liberal tax regime and raise taxes in the energy sector.

Analysts say the oil-rich nation is growing in its resolve to exert more control over its resources following the first post-Soviet decade when Kazakhstan, its economy in tatters, lured foreign investors with tax breaks and sky-high returns.

Now Kazakhstan is Central Asia's top economy and it sees Kashagan as key to its plan of boosting oil output to 150 million tons from the current 68 million within the next 10 years and joining the ranks of the world's top 10 oil producers.

The stand-off over Kashagan started in August 2007 when the government accused its shareholders of allowing costs to spiral to $136 billion from $57 billion, and missing the original 2005 production start target.

The June deal mapped out a new floating royalties structure for Kashagan requiring it to pay 3.5 percent of output to the government at global prices above $45 a barrel, 7.5%-8% at $130, and 12.5% at $195.

It also stipulated the consortium would not be able to use proceeds from oil production to compensate for costs sustained after October 2013 - a move designed to prevent cost rises.

Under an earlier deal, KazMunaiGas was to double its stake to 16.81% in Kashagan for $1.78 billion, with other shareholders agreeing to cut their stakes on a pro-rata basis.

But Mynbayev said that transaction had yet to be completed.

“At the moment the process is under way to formalize our agreements, including the sale-and-purchase deal which has to be finished by the middle of October this year,” he told Vremya.

“This stake deal lies at the basis of settling the dispute over Kashagan's development which we hope will lead to further, and faster, development of the project.” (Reuters)

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