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Sakhalin syndrome hits the Caspian

Eni, the Italian operator of the development project at the Kashagan oil deposit, has demanded that the budget for the project be raised from $57 billion to $136 billion.

Kazakh authorities are willing to do that only under the condition that the product sharing agreement be reexamined and their share in the profit from the oil be raised from 10% to 40%. Shell made similar demands of Russian authorities in negotiations over the Sakhalin2 project at one time, leading eventually to control over it being transferred to Gazprom.

Kazakh Prime Minister Karim Masimov stated yesterday that the government will reconsider its contract with Eni after the launch date for production at the huge Kashagan deposit was moved from the H2 of 2008 to the H2 of 2010. That change was announced at the beginning of the year, but this is the first time it has been officially acknowledged by the Kazakh government. Production was originally supposed to begin in 2005. The consortium has already paid $150 million in fines, but this time the Kazakh government will demand changes to the profit sharing agreement.

The Kashagan deposit has over 1 billion tons of recoverable reserves. The operator of the project is Agip KCO, in which Eni, Total, ExxonMobil and Shell each have 18.52% shares, ConocoPhillips has 9.26% and Kazmunaigaz and Inpex have 8.33% each.

Kazakh Minister of Natural Resources Bakhtykozha Izmukhambetov stated that the proposal to raise the expenditures for the project to $136 billion would be discussed at the monthly negotiations over the project on August 6. The operator explains the need for the money as the difficult geological conditions at the offshore deposit. (